The Construction Industry is Ripe for Transformation
The construction industry has been slow to address many of the challenges causing other industries to innovate. Despite being responsible for the largest portion of the globe’s GDP (13% in total) it has consistently underperformed, delivering projects over budget, past deadlines and with slim profit margins. This is set to change. The entire sector stands on the precipice of transformation, driven by customer demands and a fast evolving world.
Construction is set to transform beyond recognition over the next two decades (Photo by Scott Blake on Unsplash)
The McKinsey report, The Next Normal in Construction, published midway through 2020 illustrates some key factors driving change across the construction sector. Those who move fast and decisively stand to gain a large portion of the $265 billion in new and shifting profits expected to result from the transformation. While published part way through the pandemic, the authors note that the impact from COVID-19 is likely to speed up the adoption of new technologies and processes for this sector.
A late arrival to transformation
Construction businesses have lagged behind almost every other vertical when it comes to digitisation. This has had far reaching impacts. Earnings before interest and taxes are around just 5%. Customer satisfaction is marred by budget overruns of as much as 80%, consistent delays to completion and lengthy legal procedures. Global annual labour growth over the past two decades was less than half the productivity growth of the rest of the global economy’s of 2.8% per year.
Low rates of standardisation have fragmented value chains, limited economies of scale and hindered innovation and digitisation. Of all industries, construction is the least digitised across assets, usage and labour. While other sectors have seen around 90% adoption of new technologies – cloud-based CRMs, Lithium-ion batteries, and laparoscopic surgery to name a few – in the last 28 years, construction businesses have been consistently resistant to technological advances. Building Information Modelling (BIM) adoption rates, for example, have reached just 60 -70% penetration over the past 35 years.
It’s a situation unlike any other industry on the planet, but not entirely unprecedented. Historic shifts in four other industries – shipbuilding, commercial aircraft manufacturing, automotive production and agriculture – can provide insights to what we can expect to happen in construction over the coming 5 to 20 years as its transformation picks up pace.
Digitisation is coming to construction
Construction – which includes real estate, infrastructure and industrial structures – is on the cusp of dramatic and thorough change. The changes will encompass nine key shifts – a move towards a product based approach, specialization, value chain control and integration, customer-centricity and branding, consolidation, investment in technology and facilities, investment in human resources, internationalisation and lastly but by no means least, sustainability.
These factors, along with evolving customer demands for increased performance, lower total cost of ownership (TCO), operational efficiency and more are driving a rise in digitisation. Many industry leaders believe the digitisation of products and processes will be one of the key areas of transformation. What’s more it is expected that dramatic digitisation transformations will begin impacting construction in just five years. Two decades from now, the sector will be unrecognisable from what it is today.
Increasing demand for simplified, digital interactions and better information is already pushing the implementation of digitalised products and processes such as BIM for design, smart O&M manuals and even virtual sales and distribution channels up priority lists. BIM models can facilitate better and earlier decision making for projects. Distribution processes and logistics management handled via online platforms can give companies better control while integrating value and supply chains.
Just as long delivery timelines, low customer satisfaction, costly products and limited quality assurance forced the aforementioned industries to innovate – albeit over a longer period of time – so too are these factors pushing the construction industry to follow suit. Already the industry is seeing increasing emphasis and investment in R&D and construction technology. The transformation is only just getting started and will create a need for players to further invest in technology and facilities. Those who do, with a focus on digitalisation and data-driven products and services, will place themselves to become industry winners. It’s an exciting period for construction businesses and one that will ultimately deliver more value for customers.