Monthly Archives: May 2017

Subcontractors’ business model in the age of digitalisation?

Otto Alhava, CTO

As I tried to explain our business model in a subcontractor meeting on site, the CEO of a small-sized subcontractor said to me: “Otto, our business model is based on over-booking our resources due to the fact that you can only promise that the site is ready for our workers on Monday, but you cannot tell on which week in the next quarter.” Some of the participants sneered a bit, but I didn’t stop at that remark, instead I moved on with the discussion and agenda.

This remark started to haunt me later. What is the prevailing subcontractors’ business model? What are their value propositions, key activities, customer relationships, or revenue streams? As main contractors, and their main customers, do we know how our most important partners run their businesses? We create the demand in construction business and the market for subcontractors. We create the rules and interfaces for subcontractors and their business models must adapt to the terms we set.

The other day, I had a discussion with the site manager of a relatively large residential project of ours, and I asked him what is currently causing the worst troubles in the project. The answer was not unexpected: “Bad subcontractors: they don’t show up when they promise, and if they show up, they leave without notice and just try to find an excuse to be paid for waiting afterwards.” I continued by asking what is causing this behaviour, and our site manager replied that the cause is mistrust. He continued that most of the subcontractors are not trustworthy.

From my experience, trust is a bidirectional phenomenon and it is based on rules and facts. As they say, what goes around comes around. We, the main contractors, have most of the data and all the possibilities to use IT-solutions for the benefit of our subcontractors and to secure their success. The problem which we have to overcome is the prevailing revenue sharing model: I earn more if someone else in the project earns less. The solution is not as complicated as we think. We don’t have to change the commercial model or contracts between the main contractor and the subs. All we must do is share information among the project participants, including scheduling, design, and construction process information, for example by using a real-time tracking system being developed in the iCONS project. By being transparent, the faults and incomplete issues will be detected and solved together. But first we must start trusting and respecting each other. It is also true that one must give away something before one can expect to receive something back in this world. In the age of digitalisation, we – the main contractors -should guarantee access to correct information to our subcontractors. Not as plans, paper, or any analogous format, but the relevant information, in practical format, in real-time, location-based and to the relevant person. Real-time and location-based information requires technology such as iCONS. Common information is the first step towards common understanding. If we understand our project together and our roles in it, we are able to deliver what is needed and what everyone expects to deliver to the project. Simultaneously, we start building trust.



Fira Group Oy

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