Can digital secure the foundations of construction?

By

Erin Roberts

EY Global Engineering & Construction Leader

Construction and engineering insights from 25 years of experience serving the sector. Lifelong boy scout. Father of two. Passion for travel.

8 minute read 21 May 2019

The construction and engineering sectors have been slow to adopt digital solutions, but action is increasingly vital.

According to the UN, around 55% of people live in urban areas; by 2050, that figure will rise to 68% — an increase of around 2.5 billion people.

With demand for new buildings and urban infrastructure only set to increase, the construction and engineering sector will struggle to meet this growing demand without significant improvements to its productivity and ways of working.

Our Global Construction and Engineering Survey sought to find out what the sector is doing now to meet these challenges, what it sees as coming next and how it sees its future beyond the urgent need for transformation.

Identifying the needs of tomorrow, today

The industry knows it needs to change to meet the demands of tomorrow, but it is woefully underprepared and historically slow to act. Our survey reveals that just 25% of firms have a digital strategy and only 9% feel they are on the right end of readiness.

Low investment

67%

of sector players spend less than 1% of turnover on R&D.

The construction industry is one of the last to be disrupted. But disruption is on its way. If companies cannot afford to invest in digital, others will fill the gap.

The sector has not changed substantially since the 1970s. Low levels of investment mean that opportunities to overcome legacy issues around the time, cost, safety and quality of project delivery are few. The construction industry is one of the last to be disrupted. But disruption is on its way. If companies cannot afford to invest in digital, others will fill the gap.

A key factor in this lack of progress is minimal profit margins — typically 2% compared with an average of 30% in other industries.

When your profit margins are narrow, spending 1% on digital upgrades and innovation can seem like a heavy investment — but failing to invest in solutions that could boost productivity is counterproductive. The World Economic Forum estimates that a rise in productivity of just 1% could result in savings of US$100 billion a year for the construction industry.

Yet the industry faces a broader range of challenges than poor productivity alone. Competing demands can be hard to work through and prioritize, especially when rapid technological change makes the future business landscape uncertain. Such demands can range from a lack of integration between systems, to difficulties obtaining management buy-in and adoption of technologies.

Building a digital construction company

Even for firms actively investing in digital transformation, much work needs to be done while the target continues to move. We identified four core steps construction firms should take to maximize their chances of long-term success:

1.  Focus on the long term

With stakeholders often looking for fast results, it can be tempting to focus on patching short-term issues rather than thinking big, especially when there’s so much uncertainty about what’s next. But firms cannot effectively leverage technology without a well-planned, long-term strategy.

To create a successful strategy that will maximize the chances of long-term success, you should first challenge your strategic direction, and then seek to define the future state of your organization based on the business models that will create lasting value.

The pressure to react to current challenges is heightened by the rise of newcomers with business models that could disrupt the industry. For example, a US company is acting as an end-to-end provider, from supply through to distribution — from sourcing component parts and assembling prefabricated modules in its own offsite factories, to shipping these to the site and performing all general construction activities, including project management, erection, and mechanical and electrical engineering. The company has effectively created their very own supply chain, allowing them to cut out the distribution profits in the building, control the schedule, and use technology to design, fabricate and install. This model makes it more productive, efficient and cheaper. However, this requires a significant capital investment, which drove them to raise over a billion dollars to date in third-party capital to invest in plant infrastructure.

Meanwhile, a construction company in China that also builds offsite and ships to site, has erected a 57-story modular building in just 19 days. Using a modular method, construction firms can significantly decrease build time and provide owners increased occupancy time, offer a consistent and quality-controlled lean manufacturing process, and reduce their carbon footprint.

Such examples of productivity and efficiency serve to highlight why it’s important to act fast to avoid disruption, but they also demonstrate why it’s essential for any strategy to focus on achieving maximum long-term flexibility. New technologies — and new competitors — are emerging so fast that a strategy that focuses on a single technological solution is a big risk. Instead, organizations should build digital into every aspect of their operations to achieve maximum data-driven insight, enabling them to identify new opportunities and threats across their value chains.

2. Realize the benefits of system integration, fast

Construction is a complex process that requires access to large amounts of information, which then needs to be linked together in a way that makes sense for relevant stakeholders. Doing this successfully means understanding how to collect, store and analyze that data in an insightful and actionable way.

Technology offers multiple solutions: drones can survey construction sites, wearable devices can monitor worker movements and RFID (radio-frequency identification) chips can track equipment performance. New sources of data can be combined to give project leaders more insight into their operations than ever before. However, with new technology evolving so quickly in an industry that is historically data poor, it makes the uptake and implementation of technology difficult.

Firms should look to find ways to create, store and synthesize data, even if it’s apparent value might not yet be clear. This means organizations should develop a data strategy that revolves around a digital core to enable maximum analytical insight and operational efficiency. Renovate your IT capabilities to consolidate and integrate vital data flows, to enable end-to-end digital transformation.
Immediate cost savings — as well as compliance and accuracy improvements — can be achieved through effective digital management of payments and invoicing. Which is why we’ve introduced payment application management services (PAMS) for our industry clients. This digitally automated construction and facilities management invoice processing solution uses robotic process automation and data integration to streamline operations and unlock value.

Already, we’ve seen processing accuracy results for our clients jump from industry lows of 30% to nearly 99.5% — and average speed in processing reduced from 60 to 7 days — all through effective systems integration. Then consider converting your back office payables and receivables function from a fixed overhead cost to a variable cost. For a cyclical business, such as construction, this is worth a point on margin in the downturn that will occur.

In turn, this will enable further operational efficiencies through automation. Successful digital transformation leads to the automation of internal processes while being facilitated by that automation. And, of course, the savings realized here can be invested in further improvements — as well as acting as an effective proof of concept for skeptical stakeholders.

Already, we’ve seen processing accuracy results for our clients jump from industry lows of 30% to nearly 99.5% — and average speed in processing reduced from 60 to 7 days — all through effective systems integration. Then consider converting your back office payables and receivables function from a fixed overhead cost to a variable cost. For a cyclical business, such as construction, this is worth a point on margin in the downturn that will occur.
In turn, this will enable further operational efficiencies through automation. Successful digital transformation leads to the automation of internal processes while being facilitated by that automation. And, of course, the savings realized here can be invested in further improvements — as well as acting as an effective proof of concept for skeptical stakeholders.

3. Identify, attract and retain the right talent

All the technology in the world is useless without people who know how to obtain it and make use of it. This means leaders will need to develop or attract the right talent if they want to fully realize their digital agendas.
Any effective long-term digital strategy, designed to maximize agility, needs to have a strong focus on improving performance through continuous, predictive analytics. Firms need to identify key indicators using predictive data analytics, artificial intelligence and cognitive applications to inform and enable better decision-making. This means they need the right people to provide and verify that analysis.

Data from our survey suggests the industry is facing significant challenges in this area — four of the top five general challenges identified by respondents as obstacles to change involve talent.

There are several solutions to these issues. Businesses can train up talent in-house, expand and refine hiring practices, acquire firms with the necessary expertise, or find new ways to collaborate with new partners in their wider business ecosystem. And in turn, all of this may require additional investment — and further trust-building with stakeholders.

Resolving productivity issues and moving away from time-consuming manual processes have been costly for the industry — and has led to significant mistrust in the wider construction supply chain. For example, PAMS is able to win senior-level buy-in by replacing tedious, repetitive tasks with ones that add value to the organization. In a highly competitive job market where workplace experiences are increasingly seen as an important differentiator, such improvements can make hiring and retaining the right people less challenging.

As the industry is behind others in certain ways, attracting the right talent could be critical to its long-term success. However, by doing so, the difference will be quickly seen. This is an inflection point for companies to make the construction industry as attractive to digitally focused talent as other leading technology fields.

4. Work smart to win trust

Transforming business-as-usual operations into a model fit for a digital future is a challenging task — legacy systems abound and stakeholders often remain attached to traditional ways of doing things. Selling change means earning stakeholder trust — both internal and external, from site foremen to suppliers. This is most correct in the construction industry. The supply chain necessary to construct a major facility is currently built on mistrust — each player, owner, designer, supplier and contractor has incredible risks to manage, so there are often cases of them shifting risk to other parties.

If trust can be built, fragmentation in the supply chain can be resolved, forming a vital area where significant efficiencies can be realized. Interaction between different players in the wider value chain can focus on shared learning, improving productivity and delivering results via “value chain-accessible platforms.”

For example, blockchain could provide a new and unique platform to transform business models and allow organizations to share and collaborate within a single, trusted network. Adopting a blockchain-enabled trust platform could also allow these organizations to move with clarity and purpose on wider agendas. This enables leaders to take an innovative, “fail-fast” approach to design, enhancing their ability to compete in transformative environments.

This can add particular value to the heavily regulated and complex construction industry. Our blockchain digital handshake platform is designed to achieve integrity, transparency and shared trust. It provides a single, verifiable source of truth for all legal, commercial and technical documentation, which can only be edited with the approval of all participating parties.
Such collaborative systems build in trust by design, allowing the focus of all parties to remain working together to develop solutions that deliver real results. And with rising population’s increasing demand all the time, the industry may not be able to deliver without that collaboration.

Lasting digital success

As with every major business transformation, our survey findings suggest that both executive commitment and bottom-up implementation are essential if the construction and engineering sector is to respond effectively to the emerging challenges. New ways of thinking and working are cultural changes that take investment and patience. There are no shortcuts.

And while you need to take a long-term view, the time for change is now. Without starting on your digital transformation journey today, your business may not thrive in the new digitally enabled world of tomorrow — it may lack the analytical insight and digitally enabled flexibility to adapt.

Construction companies have long been about building things that last. A digital strategy should be one of them.

Summary

The construction and engineering sectors need to adapt to meet the demands of a radically changing world. If the sectors can overcome inherent challenges in the industry around buy-in, legacy technology, talent and integration, they can embrace the opportunities new technologies offer and realize substantial gains in productivity.

About this article

By

Erin Roberts

EY Global Engineering & Construction Leader

Construction and engineering insights from 25 years of experience serving the sector. Lifelong boy scout. Father of two. Passion for travel.