According to Nicholas Bloom’s Harvard Business Review article, “Corporations in the Age of Inequality,” a slim percentage of top-earning companies actually earn significantly more profit than their rivals in what’s been deemed the “winner-takes-most” economy. As leading companies earn more, there is less profit remaining for lagging companies, only widening the gap.
So, what does the construction industry in particular look like? In research between the Construction Financial Management Association (CFMA) and Coltivar Group, a representative sample of 363 industrial and nonresidential U.S. construction companies ranging from $1 million to over $1 billion in revenue were studied. Profitability and return on investment were used as an objective lens to compare the companies.
While 50% of companies had a competitive advantage, defined as the ability to earn above-industry-average economic profits, the calculation revealed that companies in the top 20% earn nearly 83% of all economic profit, fulfilling the Pareto principle, or the 80/20 rule. The remaining 80% of companies are confined to the dog-eat-dog environment of the lower deciles, where they contend for leftover scraps of industry profit.
How did these successful contractors achieve the initial success to advance up the curve?