The 3 Core Blockers to Digital Transformation
How Incentives, Path Dependence, and Fragmentation impact digital transformation in construction, and what you can do about it.
Change is a difficult thing. We all like the idea of it, but very rarely do we enjoy it being done to us. Any idea or need which has to be scaled over a large corpus of people - a project team, a business unit, a company, or an industry - is generally resisted.
In construction this is no different. There have been many attempts to bring change to the industry, and its component parts, which have stumbled and fallen when they meet our ancient industry.
In my role I see this manifest in resistance to digital transformation.
This article is about why I think that is and what I think you could do about it.
The 3 Core Blockers to Digital Transformation
Over the course of my career, and especially in the latter half, I have borne witness to the difficulty we have in transforming this industry. I have distilled my understanding into 3 core blockers. They are:
Misaligned Incentives
Path Dependence
Fragmentation
In this section I’ll explain to you more about what these blockers are and why they are important, with examples of the blocker in action.
Misaligned Incentives
What is it?
An incentive is something that motivates someone to do something. They drive human behaviour. As Charlie Munger once said:
“Show me the incentive and I’ll show you the outcome”.
Well structure objectives which match reward with core values and behaviours can be incredibly precise and powerful tools.
This blog from Farnham Street is a helpful read on the subject https://fs.blog/bias-incentives-reinforcement/
“The next time you wish someone would change the way they behave, think about changing their incentives.”
Misaligned incentives occur when different stakeholders are rewarded for conflicting outcomes, creating friction in decision-making.
Why is this important?
If people are correctly incentivised to take an action, in our case to support or invest in digital transformation, then it is likely to happen.
Unfortunately, whilst one group can be incentivised to take one action, others can be incentivised to take others. Misaligned incentives drive behaviours that actively resist change.
Incentives can also promote short-term thinking if not setup well. When a managers bonus is on the line to meet a milestone date, then you can be sure they will move earth to make that date. Will that be at the peril of other metrics like quality or safety? It depends on how well the incentives have been structured.
Example 1
Digital experts within a contractor are incentivised to bring about the use of technology, such as BIM or reality capture, to projects in order to provide efficiency, better outcomes, or meet client needs, or all of the above. Those potential betterments come with an up front cost.
The Commercial Manager is incentivised to manage costs and budget.
Unless the project must, likely under contract, to use that tool then it is unlikely that the commercial manager will support it. There is an opportunity to demonstrate the value, but sometimes, even then it may be difficult to argue for the use case.
To be clear, there is no saying that the Commercial Manager is incorrect. This is simply an example of misaligned incentives.
Example 2
The above is a very open and common misaligned incentive. However, there are more hidden examples. For instance, businesses are incentivised by profit to automate processes and reduce their wage bill where ever possible so long as the product quality, and peoples safety & wellbeing isn’t affected. People are expensive resources.
The people themselves are incentivised by the need for a wage and a future job to resist automation, especially when the job is perceived to be at risk.
There are numerous other examples. Wherever human behaviour is, so are incentives. Once you see it, it’s difficult to un-see.
Path Dependence
What is it?
I’ve written about path dependence in the past, I will continue to do so. It’s fundamental to the problem of managing behavioural change through a company, industry or population. The premise is that once we make a choice a number of times, that choice becomes engrained. It becomes part of the ecosystem and habits. It’s tricky to unwind. The next time you make a decision you are effectively limited to choices made in the past. History shapes outcomes.
“The general model for this impact comes from economics and is called path dependence, meaning that the set of decisions, or paths, available to you now is dependent on your past decisions.” - Gabriel Weinberg
Common examples of this at scale are the QWERY keyboard, the standard railway gauge, and how your town looks now.
You can read my previous post on this here:
Why is it important?
In construction, past decisions on standards, workflows, and systems limit today’s choices, making change difficult.
Path Dependence limits the choices you now have. It effectively locks you in to a status quo. This can actually be positive where a product or process has reached a very high maturity, and is the best way to achieve the outcome. It also allows for standardisation.
However, we often see the negative impact of path dependence. This comes out in the following ways:
Cultural inertia - surfaced by the "We've always done it this way" mentality.
Sunk cost fallacy - with a reluctance to abandon expensive legacy systems.
Skills and training gaps - where teams are proficient in old methods and lack the knowledge to adapt.
Over-reliance on legacy tools - even if inefficient, they're deeply integrated into processes.
Example
You’re buying a new digital platform into the your business for land consents management. It’s great, and expected to provide significant efficiencies - with a value 10x the cost of purchase through automation.
Unfortunately the current inefficient process is deeply engrained. The new solution requires the underlying process to change, and users need to alter their way of working. What’s more, your suppliers and customers systems are also locked-in to the current way of working, it would take considerable effort on their side to adapt to release your efficiencies.
Following a study you find that the actual up-front costs to realise the efficiencies are too great and somewhat out of your control. You can’t proceed.
Fragmentation
What is it?
Fragmentation generally refers to the state of being broken into septate parts. In the context of an industry, organisation, or project, it manifests as a lack of integration and coordination between entities, processes, or systems.
In the construction industry fragmentation refers to it’s decentralised nature. Unlike industries with dominant players setting standards (e.g. tech or automotive), construction remains highly fragmented, with influence dispersed across multiple firms and project teams.
At the project level fragmentation is prevalent through the disintegration of the construction process and the entities involved in a project. Manifesting through poor coordination, collaboration, and communication between the various function disciplines and phases.
Fragmentation in construction can be viewed through two lenses:
Vertical Fragmentation - the industry’s segmented project lifecycle, where design, construction, and operation are often handled by separate entities with misaligned goals.
Horizontal Fragmentation - the complexity of supply chains, where multiple subcontractors and specialists operate independently, leading to communication gaps and data silos.
Essentially, we split ourselves into silos which offer design, build, and then operate - all to deliver the same end product. This is then further exacerbated as the complexity grows into specialisms - which fragment the industry further. Architects, structural engineers, environmental engineers, general contractor, M&E contractor, etc… I could keep going, but I think you get the point.
Traditional construction is highly fragmented compared to manufacturing, though emerging trends like modular construction are pushing toward greater vertical integration.
This has it’s positive side, whereby projects can benefit from lower costs and increased specialism. However, when you’re trying to bring about digital transformation it increases resistance and complexity.
Why is it important?
Fragmentation may be the most important of the core three blockers. I believe it’s the underlying reason for the difficulty we have in making lasting positive change in the industry. It underpins both incentive and path dependence.
It leads to misaligned objectives and communication breakdown. It creates silos and lowers visibility. It means the industry is decentralised in nature, which makes it difficult to bring about central organisation and change.
Some of the impacts of fragmentation are:
Poor coordination - between teams, stakeholders, and the supply chain.
Disjointed data - with information scattered across systems, making integration difficult.
Difficulty with cost - where smaller firms may struggle to see the ROI and have the resources for digital tools and training.
Inconsistent implementation - resulting in digital strategies varying wildly between teams, projects, or business units.
Stifled Innovation - through limited knowledge sharing.
Example
A tech company commissions a data centre, but fragmentation causes costly delays. The architect’s cooling design clashes with structural constraints because the M&E contractor wasn’t involved early. Each team uses different systems—platform tools, spreadsheets, proprietary internal tools—leading to disjointed data and lost critical information. The general contractor wants digital quality control, but small subcontractors lack the budget or expertise, so paper-based checks persist in areas. Some teams push for BIM, while others rely on 2D drawings, creating inconsistent implementation. You’re left with a fragmented, inefficient project with higher costs.
How Other Barriers Derive from The Core Three
Now you have these core blockers in your mind you start to see how they can blend in different proportions and scenarios to form some of the things you see day-to-day as you try to push for change.
Lack of clear vision and/or leadership - often stems from misaligned incentives and fragmentation, where leaders don't agree on priorities or benefits.
Risk aversion - both incentives and path dependence make organisations fearful of disrupting existing systems
Interoperability and technology interface issues - result from path dependence (legacy systems) and fragmentation (silos).
No upfront investment - when incentives aren’t aligned the ROI can be unclear or even diminished. Legacy systems (path dependence) are seen as good enough (”we’ve always done it this way”).
When you’re facing stakeholders and hearing their objections listen for where the three core blockers may be at play.
The Unblocking
So, how can you use this knowldge to unblock transformation?
“A problem defined, is a problem half solved” is a quote often attributed to Albert Einstein. Once you can see the underlying issue you can begin to find the solution.
The Core Relationship
By addressing incentives, path dependence, and fragmentation, you can reduce most of the downstream barriers. For example:
Aligning incentives motivates stakeholders to embrace change.
Overcoming path dependence removes legacy bottlenecks.
Reducing fragmentation ensures everyone is working toward the same goal.
“A problem defined, is a problem half solved” Albert Einstein.
How to align incentives
Aligning incentives is a tough proposition. You will not necessarily be in a place to actually address this one unless you’re a senior leader in business who is able to set strategy, targets, and rewards. But that doesn’t mean you’re powerless.
What you can do is fit the incentive. Find a way to make your solutions fit the incentives of key stakeholders. What are their current blockers to meeting there targets and ambitions?
Time - how does your solutions make things go faster?
Cost - how does your solution offer backend value? How can you keep costs low and/or reduce other costs because of your solution?
Quality & compliance - how does your solutions improve outcomes and ensure that requirements and standards are met more efficiently?
I was recently listening to an interview with Jim Collins on the Tim Ferriss podcast. It’s full of fantastic insights from an incredible business mind - you can listen here or wherever you get your podcasts. Anyway, the nugget he have which is relevant here is “Don’t try to be successful, try to be useful”.
How to break Path Dependence
When things are ingrained it’s really tough to break out of the groove. “The way we’ve always done it” is endemic. However, sometimes this is not always a problem. You must be careful not upset the balance of things which are genuinely the best way of doing things. I talk about this, the Lindy Effect, in this article:
First do no harm - ensure that what your breaking should be broken!
Here are some other suggestions once you’ve assessed that the impact of change is positive:
Incentivise change - see above. If you can align incentives the road becomes much smoother.
Introduce change in small, controlled phases - use pilot projects to build momentum and reduce disruption. Both in a sense of the scope of the change being made but also in the volume of change.
No choice - remove the option for people to revert back to learned pathways. Make changes structural. For example; take away old software.
Train and support - ensure people know what they need to about the new way of working and that they are supported to meet the desired outcomes.
Make it easy - make the new thing as easy as possible.
Employ professional change managers - these people are trained and experienced in making behavioural change happen. Lean into them for support where possible.
Intervene at the right time - start as you mean to go on. Unless absolutely necessary, don’t try to push a change in the middle of an ongoing project. Instead start fresh and benefit from fragmentation. When new teams form, a new project starts, or a new phase begins are good times to look at implementing positive change.
Path dependence happened gradually. You can’t undo it in one fell swoop. As Winston Churchill said:
“To improve is to change; to be perfect is to change often.”
How to deal with fragmentation
You alone cannot change the fragmentation at the industry level. And, let’s face it, also the project level. It is the way it is. It will take consistent effort from many angles to wrangle the industry into a more collaborative, standardised space.
What you can do is understand the playing field and make tactical adjustments knowing the reality of the situation.
You won’t ‘fix’ it, but you try to mitigate it.
Here are some ways you can deal with fragmentation:
Foster a Collaborative Culture - by encouraging open communication, knowledge sharing, and teamwork across different departments, teams, and stakeholders. Use collaborative workspaces, regular meeting cadence, and knowledge management systems. Find ways to align the incentives of project or company leaders as they play a crucial role in unifying different entities and guiding them towards a common vision.
Establish Clear Goals and Objectives - ensuring that all stakeholders have a shared understanding of your project's goals, objectives, and expected outcomes. This helps to reduce conflict and gives a sense of collective purpose.
Develop a Change Management Strategy - by involving stakeholders and team members in the change process. Communicate the benefits clearly, and providing adequate training and support. Empowering innovation and creativity can help overcome resistance to change by encouraging employees to be part of the solution and contribute to the transformation process.
Espouse Continuous, Iterative, Improvement - by establishing a feedback loops to monitor progress, identify areas for improvement, and adapt approaches as needed.
And where possible:
Embrace Digital Technologies - which promote collaboration, communication, and data sharing. This can include Building Information Modelling (BIM) software, project management platforms, and communication tools.
Standardise Processes and Data - to ensure consistency and facilitate information exchange across different stakeholders. Establish common data environments and adopting industry standards.
Fragmentation is a natural tendency in large, complex industries. Without strong coordination, silos will form, making collaboration harder. The key is to understand it exists and to try to maintain communication. Talk to people. As Margaret J. Wheatley said:
“Listening moves us closer, it helps us become more whole, more healthy, more holy. Not listening creates fragmentation, and fragmentation is the root of all suffering.”
Key Takeaways:
Change in Construction is Tough, But Not Impossible
The industry has deep-rooted traditions and structures which make transformation difficult, but understanding the core blockers helps navigate the challenge.
Three Core Blockers to Digital Transformation:
Misaligned Incentives: Different stakeholders are motivated by conflicting goals, making it hard to align efforts for change.
Path Dependence: Past decisions create inertia, making it difficult to adopt new processes and technologies.
Fragmentation: The construction industry’s siloed nature leads to poor coordination, disjointed data, and resistance to standardisation.
Most Objections Stem from These Blockers
Whether it’s resistance to investment, fear of change, or difficulty in implementing new tech, nearly every challenge in digital transformation can be traced back to incentives, path dependence, or fragmentation.
Addressing These Blockers is the Key to Unlocking Change
Align Incentives: Ensure that transformation efforts align with business objectives and stakeholder goals.
Break Path Dependence: Introduce change gradually, remove outdated processes, and support people through the transition.
Navigate Fragmentation: Encourage collaboration, set clear objectives, and leverage digital tools to unify project teams.
Transformation is a Strategic, Not Just a Technological, Challenge
Digital tools alone won’t fix the industry’s issues; leaders must also focus on cultural and structural barriers.
Small Wins Lead to Big Change
The best approach is incremental. Start with small, meaningful changes that demonstrate value and build momentum for larger transformation efforts.
Communication and Leadership are Critical
Change succeeds when leaders foster alignment, engage stakeholders, and set a clear vision for the future.
Digital transformation in construction is challenging, but by identifying and addressing these fundamental blockers, leaders can drive real, lasting change.