How Construction Field Technology Drives Higher Profit Margins

Posted by Stephanie Patterson, Rhumbix Insider on 10/5/17 9:30 AM
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How Construction Field Technology Drives Profit MarginsA while back, Rhumbix CEO & Co-founder, Zach Scheel, took to the airwaves with the ConTechCrew to share more about what Rhumbix is up to in the field, and why worker empowerment is such an important core value for us. The conversation ranged from Zach's military background to what firms are doing to achieve net profits consistently above 10%.

The ConTechCrew is hosted by JB Knowledge CEO James Benham, with co-hosts Rob McKinneyJosh Bone, and newest member Jeff Sample. We're big fans of these guys at Rhumbix. They have interviewed literally hundreds of construction professionals, and are constantly pushing the envelope on construction productivity. If you're not listening to their podcast regularly, you should be.

James Benham kicked off the conversation asking Zach to share with listeners what Rhumbix is all about.

ConTechCrew: So at the heart, what is your elevator pitch on Rhumbix? What do you guys do?

Zach Scheel: Rhumbix is all about digitizing the last mile of data collection on jobsites. We help builders go paperless in the field and then use that information to improve how they measure and manage productivity. So we are digitizing the timecards, getting that information daily, and comparing it to what was originally budgeted.

Now you can know on a daily basis how much money you made or lost on a project, and drill into the root cause of what was causing those efficiencies, or inefficiencies.

We've got a construction team and a data science team that are crunching all the data that is coming in daily, and delivering actionable insights that can be implemented to improve project outcomes.

CTC: So you are tracking real time money.

ZS: Real time money. Daily.

CTC: That is what everybody here has to be looking for. That transparency and seeing how their money is being spent daily. That is a big deal. Labor costs are a big deal, too.

ZS: That is the ultimate common denominator. If you can show them a lot higher operating margin by creating higher efficiencies from the crews, that translates to bottom line savings.

CTC: James and I were just showing a slide yesterday at the Mechanical Contractor Association showing the rising cost of construction. The crazy thing is materials have not really gone up that much. They have remained flat since 2007, even projecting into 2020. Guess what is going up? Labor, labor, labor.

On the construction jobsite, only 37% of a workers time is actually spent at the workface. The rest of the time, what are they doing?

ZS: They're searching for things like materials or equipment, or dealing with delays like working around an unexpected crew that is also at the workface. Electricians get scheduled to do their work the same day the sheetrock crew is in, and naturally things slow down. So really they're just chasing things down that they need before they can go forward with the work that they were hired to do.

CTC: Exactly. And so a lot of those come back to communication issues don’t they?

ZS: Absolutely.

CTC: Just planning and communication.

ZS: Yep. So we help digitize the nature of all of those delays, be it a crew in the way, an equipment malfunction, or missing materials. And that allows us to standardize and baseline across all crews within a company and say: "Hey, where you're really losing money is because your crews don’t have the right materials at the right time."

This helps them focus on improving their workflows which, in turn, improves productivity.

James then asked Zach about whether he thought the military or private industry was more productive, given his background as a Navy Seabee. Here's what Zach had to say:

ZS: Whether military or private industry, I think it ultimately comes down to the morale of the crew. With the Navy, construction projects are often very mission-driven which motivates the crew to stay focused.

On a construction site, there is not always a clear mission or common goal communicated and as a result you have a lot of bickering and fighting between trades.

One of the projects I managed with the Navy was the build-out of a barracks up in Everett, Washington. It was also the Navy’s highest LEED certified building and it was dedicated to a local sailor that had been killed in Afghanistan.

On that project, performance was tremendous. And I think it was because every day, every worker knew what they were working on and why they were working on it. They were building more than a barracks; they were building a home for 18, 19, 20 year-olds coming off the ship.  And, to be working on something that is the highest-rated green building in the Navy and dedicated to a sailor that lost his life defending our country. That's a very motivating common purpose.

So what role does Rhumbix play in giving workers a shared mission?

ZS: We encourage a mission-driven approach by closing the feedback loop with the field. The Foreman Feedback feature of our Field Intelligence Platform delivers productivity feedback on a daily basis, and we find that drives a higher level of engagement with the foreman. Foremen want to elevate their performance, and seeing the daily stats of their crew through Foremen Feedback creates a very healthy spirit of competition.

The guys were curious to hear more about the concept of closing the feedback loop.  

CTC: Let’s dive into that. How does better communication drive cultural change? I love the idea you're talking about: a daily review of the work plan.

How is it that you build up the workers and get engagement - this circle of trust - from guys who are normally like, "Why are you watching me? Why do you care how long I went to the bathroom? I was on a smoke break, what does it matter?" How do you get them to accept this and almost make it a challenge?

ZS: At Rhumbix, we have a fundamental belief that construction workers are honest, hardworking, intelligent, and are capable of doing the work better. We just haven’t given them the digital tools to do that. So we get them on board upfront by telling them why we're tracking things. It's to improve labor productivity. Period.

CTC: The Rhumbix platform enables the productivity analysis, then.

ZS: It does, and the analysis enables the workers to come up with the solutions for process improvement.

CTC: So it's process, software, and a workforce that is willing to improve?

ZS: Absolutely. It takes all three. It's like what you guys talk about on this podcast all the time:

We are not going to replace jobs. We are going to develop tools that help you do your job better.

CTC: What I say is we want to drive construction to a 10% margin business or better.

Wait. 10% margin business or better? How is that possible? Construction classically runs an average of 2-3% profit. The business is known for razor thin margins. The ConTechCrew had a few things to say about that from their experience interviewing other professionals in the field who are pushing hard to improve efficiencies.

CTC: I know general contractors that make - well, they do some self-perform too - but they net 12-14% profit because they are super-optimized around efficiency. I had mechanicals that I was hanging out with this week that are netting north of 10% on every single job, because they went 100% pre-fab and started analyzing and improving their process.

So we don’t have to say forever that we are in a low margin business. But it takes willing people, it takes process, and it takes some really good technology.

We couldn't agree more. Higher productivity has been our vision from day one, but it does take people that are willing to try something new. And the good news is it doesn't take long to get those most skeptical of new technology on board. Zach shared about this later in the interview.

ZS: For the first several months, our team spent a lot of time out in the field with foremen having them tell us how much they hated using our product in very colorful language. And we listened to them. We made changes, and the Foreman's App got simpler and simpler.

Today, it's a different story. When we're running pilots, we usually see the foreman become one of our chief advocates. After a week or so, he's coming back saying, "Hey, this is great. I actually like this better than paper."

And you know, paper is very hard to replace. It's flexible, they can write whatever they want, and they are used to doing that. It is a big behavioral change to go from doing a weekly paper timecard to a daily timecard. But we've built the system in such a way that within just a few days, the field will refuse to go back to paper because the process is so much smoother, cleaner, and easier with Rhumbix.

Of course, getting rid of paper is just the beginning. The full value of digitizing data is the opportunities it creates for the field AND the office. Better data leads to better conversations which leads to better decision-making at all levels.

CTC: You know Zach, I look at Rhumbix and what I see is something that provides companies with information to empower their leaders to have better conversations. Do you see that happening? You are dealing with foremen, they have a lot of challenges that they are being faced with today. How do you see that playing out?

ZS: Rhumbix provides the foremen with the data they need to communicate the nature of their problems, and create more awareness of it for the project managers. They're getting listened to, and changes are being made a lot quicker in the field, and they like it.

It is a virtuous cycle of, "Hey, I am reporting this information and things are getting fixed quicker. I'm going to continue to report what I need and the best practices I am following." And in turn, they get the social recognition within the company of a job well done, which is very gratifying.

CTC: You are showing what's in it for them.

ZS: That's right. It can’t be unilateral. Traditionally, all the other software tools have resulted in a burden on the foreman, primarily, to pass information upwards without getting anything in return. So what motivation do they have to do it more accurately and on time? None. So we give them something back that helps them do their job better. 

Near the end of the interview, James brought up the number one excuse they hear from people all the time: Why aren't companies investing in technology that will help them do their job better?

CTC: We always hear guys say, "Are we really going to have time to make all that extra money you're talking about once we streamline this process?" I mean, really. How many times do we hear those conversations where people say, "We don’t have time, we don’t have time."

Everything we've been talking about today: it's right there IN time. It is happening as you are going through the process. You're systematizing their workflows on the fly.

ZS: Yeah. That's it. And, you know, it's a chicken before the egg conversation. They say they can’t invest in technology because they have low margins. But they have low margins, because they don’t invest in technology.

CTC: That is the exact phrase I use in every speech: Chicken or the egg. You just have to make the jump. No guts, no glory. No investment, no return.

ZS: Exactly. Look, if you invest in labor productivity, you're going to have a better operating margin which then gives you the cash you need to invest more in infrastructure and information technology.

So what's it going to be for you and your firm? The chicken or the egg?

Listen to the complete interview on YouTube. You can listen and subscribe to other episodes of the ConTechCrew podcast here

Questions and answers edited for brevity and clarity.

Topics: Construction Technology, Construction Productivity, Construction Innovation

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