• David Heron

Construction transformation: This time it's different

In last week’s article, I proposed that the conditions to Transform Construction are finally coming together. Given the highly fragmented nature of the industry – the US has over 680,000 construction companies each with an average of 10 employees –the forces needed to drive transformation have to be significant. Look at the list of drivers below which apply in many countries, and make up your own mind:

  • Cost, Quality, Timeliness: Many customers of the construction industry have the perception that projects are largely delivered late, over budget, and below quality expectations. While there has been no alternative, this has been accepted. However if customers can be convinced that Modern Methods of Construction have higher rewards than risks, then a fertile market exists

  • Labour shortages: On-site construction is not an attractive career choice for many young people. Historically this has been mitigated by the use of migrant (foreign and domestic) labour, however this is becoming harder as the number of migrant construction workers falls or is restricted.

  • Insufficient industry capacity: In part as a result of the labour shortages, and in part because low capacity leads to higher prices, there is insufficient construction capacity to deliver all the projects desired. The subsequent lack of competition impacts costs, timeliness and quality.

  • Housing Crisis: Decades of under-investment in residential real-estate in both mature and emerging markets, and continued urbanization in emerging markets, is driving up rental and purchase costs so far, that the housing crisis is now leading to social unrest and therefore high on the political agenda.

  • Sustainability: With more than 40% of CO2 emissions coming from buildings, and a 60% in installed floor space anticipated over the next 30 years, building better buildings is going to be key to meeting CO2 emissions targets. This is further increasing pressure on politicians.

  • Government: As a major purchaser of construction, Governments have a strong incentive to reduce costs and increase quality. They are also under increasing pressure to solve the housing crisis and promote climate friendly policies. Consequently they are becoming involved both as specifiers and customers.

  • Digital Maturity: Maybe this should be at the top of the list. Digital tools for construction are reaching a level of maturity that is enabling more seamless exchange of information between the various parties working on a project. This increases transparency, increases speed, reduces errors and waste. Reducing the latency in information exchange accelerates project timelines, and thereby increases industry capacity. It also drives commoditization of almost every part of the construction process, reducing margins. Throw in Virtual Reality and it becomes practical to move tasks to places where they can be done best (& cheapest). It also opens the door to the potential for machine learning and AI to optimize structures along multiple dimensions such as cost, construction time, sustainability or total cost of ownership. Sounds like a distant dream? It’s already happening, and we will explore this in a future article, and the impact it’s having on the value chain.

These forces interact with each other, and as these interactions amplify the rate of change, so we approach the tipping point in the Transformation of Construction.

Next week we will take a closer look at the ways Digital is enabling the Transformation of Construction, and the potential new businesses and business models that might emerge as the result of greater digitalization of construction.

In the meantime, post a comment and let people know what you think.

© 2020 David Heron

+41 79 547 4113

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