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Introduction
The AEC industry faces a persistent innovation paradox. Despite widespread acknowledgment of the need for digital transformation with significant capital flowing into construction tech startups, the establishment of innovation labs and executives endorsing digital initiatives, these efforts often fall short of delivering the transformative results stakeholders anticipate.
This disconnect isn’t due to lack of effort or commitment.
The challenge lies deeper than technology adoption or training programs. Most AEC organisations focus on surface-level solutions while overlooking systemic barriers. Four interconnected obstacles consistently undermine innovation efforts and they’re so embedded in industry operations that they often go unrecognised:
- The cultural collision
- The process paradox
- Innovation theatre
- The funding trap
Understanding why these barriers exist and how they are interlinked explains why isolated solutions fail and why digital transformation requires a systematic approach.
The cultural collision
This fundamental tension emerges from an incompatibility between what our industry requires for project success and what innovation needs for breakthroughs.
AEC firms operate in environments that demand exceptional coordination skills, managing complex stakeholder relationships, safety-critical decisions, and constantly evolving project conditions. We’ve developed strong crisis management capabilities and excel at rapid response when problems emerge. Cascading failures emphasise the importance of risk aversion, as a single mistake could bring everything down. Our focus has to be on control and predictability.
The problem is that this mindset influences how we perceive everything, including our approach to innovation.
Digital transformation requires increased agency, the ability to iterate and learn rapidly and take risks in a controlled manner. Shifting to this mindset suddenly results in a ‘culture collision.’
The industry’s emphasis on schedule adherence and risk mitigation naturally develops leadership styles focused on rapid problem-solving and crisis management. These skills are invaluable for project delivery, where quick decisions can prevent costly delays. However, when this same reactive approach is applied to digital transformation, innovation tends to be viewed as another problem to solve quickly rather than a fundamental shift in how we work.
Additionally, research shows that background and experience impact innovation.
Research suggests that leadership composition can subtly influence how innovation is prioritised. For example, leadership teams with a strong finance focus often excel at driving cost efficiency and maintaining profitability, while those with predominantly engineering expertise are highly effective at optimising existing systems and improving reliability. Both approaches deliver real value, but they also tend to favour refinement over reinvention.
To broaden the scope of innovation, AEC firms can benefit from incorporating leaders with entrepreneurial backgrounds, product-thinking skills, and a strong customer-centric mindset. These perspectives introduce different success metrics, such as long-term value creation, market differentiation, and user experience, which can help shift the conversation from cost control to value creation. Leaders with this background can complement the strengths of financially and technically focused leadership, creating a more balanced innovation portfolio.
This preference for refinement over reinvention is reinforced when innovation is managed using the same frameworks as construction projects, with tight deadlines, budgets aimed at completion rather than exploration, and success metrics centred on delivery instead of discovery. As Dustin Schafer from Henderson Engineers points out, boards often “empower their innovation teams to work within the current delivery system, but not on the system itself.”
This mindset is no accident; it is shaped by systems built to protect against risk in high-stakes environments. But innovation needs room for small, safe failures. We’ve all seen a promising tool fail under pressure, damaging delivery and leaving a lasting reluctance to try again. Even strong solutions can be dismissed because past failures have made teams more cautious and resistant. Ironically, while the industry routinely manages the consequences of project overruns, it often allows little room for failures in innovation initiatives, even though these are essential for learning and progress.
Changing this culture requires deliberate effort.
Left unchecked, the default leads to more control, including added checklists, extra approvals, and increased bureaucracy. That’s not just inertia. It’s a rational response to tight margins and high project risk where one overrun can undo the gains of five flawless projects.
Shifting that mindset is about building a culture that inspires people to do their best work and provides them with the tools and trust to do it even better.
The process paradox
When innovation attempts repeatedly clash with an industry culture designed for control and predictability, organisations respond in a seemingly logical way: they create more structure. This rational response to cultural tension creates what we call ‘the process paradox.’
As organisations grow, they often evolve from solving problems case-by-case to relying on established processes. This shift is natural as standardisation delivers consistent value at scale, but over time, it can reduce the adaptability that fuelled early success. Dan Davies, in The Unaccountability Machine, describes this as the creation of “accountability sinks” — systems that maintain internal order and protect decision-makers from blame, but sever the feedback loops needed to adapt when conditions change.
In AEC, where liability and risk management are constant concerns, this often results in multiple approval layers. While these are designed to ensure quality and safeguard delivery, they can also spread accountability so widely that decisions stall. New ideas are deflected rather than explored, and technology adoption is limited not by the tools but by whether the underlying processes, workflows and roles can adapt to accommodate new methods.
Over time, these layers can erode organisational flexibility, the very quality needed to adapt to new opportunities and tools.
A site engineer cannot trial promising scheduling software when alternative approaches might offer potential benefits. Design teams cannot pivot their modelling strategies when client feedback reveals better opportunities. In many firms, structural constraints prevent responsive adaptation.
Faced with this mismatch between capability and expectation, organisations often take the safer path: creating the appearance of progress without the disruption of real change. This leads directly into the next barrier: innovation theatre.
Innovation theatre
When existing processes make experimentation difficult but stakeholder expectations for innovation remain high, organisations can drift into what we call innovation theatre – activities that appear to be making progress but don’t consistently deliver the depth of change needed to shift outcomes.
It occurs when efforts to innovate are channelled through the same processes, metrics, and customer filters used for sustaining improvements. The result is safe, market-friendly outputs that appear forward-looking but rarely explore truly disruptive possibilities. These initiatives may impress in the short term, yet struggle to survive contact with the realities of delivery, leaving organisations unprepared when genuine disruptors emerge.
The pattern is consistent across industries. Organisations sometimes chase trending technologies without fully defining the problems those tools should solve. This can lead to investments in solutions with unclear business cases, which increases the risk of adoption challenges and disappointment.
A key factor is expectation. When leaders hold the view that new tools will automatically revolutionise operations, without corresponding changes to systems, workflows, or roles, frustration often follows.
How it plays out in practice, innovation theatre can take different forms across the organisation:
At the leadership level, it may appear as high-profile announcements about pilots, partnerships, or trials of emerging technologies. These initiatives often start with strong intent, but momentum can fade if integrating them into existing workflows proves more complex than anticipated.
In operational management, it can manifest as innovation budgets allocated to standalone tools or applications. While these purchases can deliver quick wins, they sometimes overlook deeper questions about whether existing workflows need to evolve in tandem with the technology.
Within teams, it might take the form of hackathons or idea challenges that generate creative concepts without a pathway for long-term maintenance or scaling. Without organisational commitment to sustain them, these activities risk becoming one-off events rather than drivers of meaningful change.
This pattern also influences the technology market. When clients signal that only tools integrating seamlessly with current workflows will be adopted, vendors understandably focus on building incremental improvements rather than more transformative capabilities.
As Atul Khanzode from DPR Construction notes, genuine innovation is “problem-focused thinking,” which begins with understanding actual challenges rather than merely available technologies. Breaking the cycle of innovation theatre means prioritising step-by-step improvements that solve meaningful operational problems, building credibility and capability for larger transformations in the future.
The cost of innovation theatre extends beyond immediate resource consumption. Every dollar allocated to showcase initiatives is a dollar not invested in experimentation that could reveal new opportunities. When these initiatives repeatedly fail to deliver transformative results, it becomes harder to justify future investment in innovation. The result is a self-reinforcing financial constraint, the funding trap, where the organizations that most need innovation can least afford to pursue it.
The funding trap
The three previous barriers create conditions that make this final challenge almost inevitable. The funding trap can lock these constraints in place.
In construction, it often appears as a structural contradiction: the companies that would benefit most from digital transformation are often the least able to fund it. General contractors typically operate on margins averaging 6%, while meaningful digital transformation requires substantial upfront investment with uncertain returns.
The constraints are immediate and practical.
As one project stakeholder put it, “I don’t have the budget, I don’t have the time to test it. You need to convince me in five minutes that this is worth paying for.”
This creates a financial feedback loop: thin margins limit investment in innovation, which perpetuates operational inefficiencies, which in turn keep margins under pressure. The math is sobering: at 6% profit margins, a company would need approximately $100 million in revenue to fund a $6 million innovation initiative. For most firms, the cost of failure becomes prohibitive.
Industry data underscores the scale of the challenge.
Analysis of software investment by sector shows that construction is in the middle tier of digital investment, despite its significant economic contribution.
This funding gap often results in what we call hero-dependent innovation, progress driven by a few dedicated individuals who invest personal time alongside their core responsibilities. While their contributions can be valuable, this approach is fragile and difficult to sustain when those individuals move on or shift roles.
Addressing the funding trap means moving from isolated hero efforts to distributed innovation, where contributions come from many parts of the organisation within their areas of expertise. This shift is becoming increasingly urgent as technology transforms the AEC industry’s approach to creating and capturing value. Traditional competition based on billable hours, project duration, and delivery speed becomes less relevant as AI and automation compress execution time.
It means value creation is shifting towards measurable results and outputs.
Basic deliverables like reports and 2D drawings are increasingly becoming commoditised, while value accrues in integrated 3D models, data-driven insights and delivery processes that generate measurable client outcomes.
This shift opens the door to alternative funding models.
Client-funded innovation becomes a logical approach when clients recognise that improved solutions can reduce costs, transforming innovation from an overhead expense into a key component of project delivery. Organisations can build continuous improvement budgets, typically 1-2% of project costs, directly into contracts.
The question then shifts from “Can we afford to experiment?” to “Can we afford to deliver commodity-level value while competitors offer strategic insights?”
For perspective, the aerospace industry typically invests 4.9% to 8.5% of its revenue in R&D, creating sustainable cycles of investment, learning, and competitive advantage. AEC firms generally allocate 1-2% of revenue to IT overall, leaving minimal resources for genuine experimentation.
The funding trap, then, is not simply about whether innovation is affordable, it’s about whether firms can remain competitive in a market shifting from time-based to value-based delivery. Building the business case for these models means not only estimating cost savings but also identifying how the value created can be monetised, billed for, or positioned as a competitive differentiator in the market.
Conclusion
The innovation matryoshka in AEC persists despite significant investments in technology, consultants and digital initiatives. Together, these four barriers form a closed loop.
Cultural norms drive rigid processes, which can inadvertently lead to theatrical innovation, but this innovation ultimately depletes the resources needed for genuine change. This is why isolated fixes often fail. The barriers are not separate obstacles, but interlocking parts of the same system.
Understanding these barriers reveals an important insight. They aren’t accidental flaws in how AEC operates; instead, they’re embedded features of systems designed for different purposes:
- The project discipline that ensures reliable delivery creates tension with innovation’s need for experimentation.
- Quality-assurance processes that prevent costly mistakes can become obstacles to technological exploration.
- Focus on immediate, measurable value conflicts with innovation’s requirement for patient investment.
This represents a system-level challenge rather than an individual or organisational failure, as the same capabilities that make AEC firms exceptional at complex project delivery can create blind spots when applied to digital transformation.
The key challenge is organisational change management and transformation becomes possible not by abandoning industry strengths, but by honestly assessing what prevents these strengths from supporting innovation.
The companies that break through these barriers likely share a common characteristic: they reframe conversations away from isolated technology adoption toward building the cultural, structural, and funding conditions where innovation can thrive. For innovation leaders, this means recognising that digital transformation in AEC isn’t about becoming a technology company, but about becoming a construction company that leverages technology strategically to deliver superior outcomes for clients and sustained competitive advantage for themselves.