Disruption in the construction sector
Struggling with low productivity, labor shortages, rising material and labor costs, and project delays, the multi-trillion dollar global construction sector is ripe for disruption. Based on our experience in the sector, we have identified a set of trends, challenges, and concrete recommendations for established players to build holistic strategies to handle disruption.
Industry players are beginning to adopt new technologies such as BIM, IoT, drones, data and analytics, artificial intelligence, augmented reality, and 3D printing, creating opportunities for new revenue streams and cost savings, and enabling new business models. For example, Skanska is developing a Tag and Tack system to facilitate real-time monitoring of material delivery, storage, and installation. Many are using drones for precision surveying and safety compliance. Boston-based Suffolk Construction has been working with SmartVid, a computer vision company, to develop a system to track and predict workplace activity and to flag unsafe situations. Norway-based Spacemaker is building an AI-driven platform to help architects, urban planners, and developers optimize designs according to a given set of criteria.
Even as these established players recognize the need to leverage new technologies and engage with start-ups, they can be slow to react and may lack the capabilities to adapt. Digitalization efforts are often isolated from the full organization, and even successful pilots may not be leveraged more broadly across the organization.
Construction software solutions are emerging across the value chain. Global software players are investing heavily in developing their own software products and making acquisitions. Autodesk, for example, invested 28% of sales into R&D in 2018 and acquired PlanGrid and BuildingConnected. The Finnish contractor Fira has developed SiteDrive, a new construction scheduling and workforce management tool for on-site resource coordination.
Currently, the construction software landscape is highly fragmented, as many software solutions, especially those developed by start-ups, seek to optimize just one part of the design-build-operate process. To build a full digital platform, engineering and construction players need to select from among multiple different products, while ensuring that the solutions are agile and open, allowing integration of key data and existing applications.
Offsite construction methods
Offsite construction methods are also gaining traction based on their potential to reduce the need for skilled onsite labor, generate cost and time savings, minimize waste, and improve quality. But despite the recent hype, modular construction players still face a number of challenges. Most still have highly manual manufacturing processes, which limits the efficiencies that can be captured via factory production. In the US, most players have not grown beyond their immediate regions, as serving beyond a 500 mile radius is often too expensive. Players that act as sub-contractors may not maximize the benefits of modular construction for owners, as they may face scheduling delays that are out of their control. In the event of a construction downturn, modular companies are often less able to scale their business down to respond to lower demand, given their factory investments. Vertically integrated companies that can demonstrate the ability to handle all aspects of the design-build process and to automate factory processes are likely to be the most successful in the space.
Strong investor interest
Significant recent investor interest is expected to accelerate the pace of change across the industry. According to Pitchbook data, in 2018 a record-setting total of nearly $5 billion dollars was invested in construction technology start-ups over more than 130 deals, marking an increase of 64% per year since 2015 and an increase of 317% compared to 2017. Admittedly, megadeals (e.g., $858 million in Katerra, over $1 billion in Viewpoint, and $770 million in PlanGrid) have skewed these figures somewhat. 2019 has not yet yielded a similar level of funding; the amount invested as of mid-August reached only $540 million.
The road ahead may be bumpy
The road ahead is not without obstacles. Players from multiple sectors or parts of the value chain have entered key segments, creating competition from all directions and disrupting the value chain (Fira’s transformation into a software provider being one example). End-customers may not want to pay for the value that technology creates. Data will be critical to success, but key players do not always know which data will be the most useful, how to structure it for the maximum benefit, or how to monetize it. Efforts to share data across companies, such as that driven by the Platform of Trust in Finland, are just beginning. Start-ups face long development cycles, complex decision-making processes, and decision makers who do not necessarily understand the technology or its potential.
How to capture the benefits of construction technology
Based on our experience in the sector and with disruption, established players looking to capture the benefits of construction technology need to build a holistic strategy to handle disruption. We recommend a four-step process:
1. Map the disruption landscape – filter through the noise to identify the most relevant disruptors
- Follow current and emerging trends
- Consider which ones will have the most impact on the business
- Benchmark against other industries and evaluate the impact of technology and potential responses
2. Conduct a threat and opportunity assessment – study the likely impacts of potential disruptors and potential new opportunities
- Evaluate how technology will impact company processes and people
- Assess how customer and consumer needs may evolve as new technologies emerge
3. Chart the course – recalibrate the strategy and realign ongoing objectives
- Consider how the value proposition may need to evolve in the future
- Develop an enterprise-wide digital and innovation strategy to achieve the vision
- Assess what new capabilities this evolution will require
4. Transform the DNA – build the capability to recognize and harness disruption
- Evolve the culture to become more innovative, technologically-engaged and customer-focused – dare to pilot technologies and build a “fail fast” culture
- Drive change across the entire organization
We envision a model in which digital technologies enable continuous, immersive engagement with the customer; products are tailored through mass customization; project and portfolio management is data-driven; collaboration is efficient and integrated via BIM and other software tools; the construction process is faster, optimized, and automated, using modular and prefabrication techniques; construction sites are safe; quality levels are high; materials arrive just in time and waste is limited. We believe that with the right approach to disruption and technology, this future is on the horizon.