6 minute read 10 Feb 2020
Businessman builds a tower

Is uncertainty the new normal?

By

David Wilson

EY Global Real Estate, Hospitality and Construction Assurance Leader

Global Assurance Leader in Real Estate, Hospitality and Construction. Auditor of all classes of real estate. Helps clients prepare for changes in accounting requirements. Enjoys sailing and golf.

6 minute read 10 Feb 2020

There is a critical need to develop infrastructure to support 21st century economic growth in the European Construction and Engineering industry. 

Is uncertainty the new normal? And if so, how do you plan for it?

Delegates from the US and EMEIA attended the 18th annual European Construction, Engineering and Infrastructure round table event held at EY’s UK HQ, More London Place, on the 25 & 26 November 2019. Other EY hosts included Erin Roberts, EY’s Global Construction & Engineering Sector Leader and Michael Cook, Director People Advisory Services, to an audience of C-Suite Tier 1 contractors spanning all corners of the UK, Europe and the USA.

The packed programme included thought provoking and provocative sessions from “disrupters” Stuart Meggs, CEO of Scaled Robotics (1) and Fred Mills, Founder of the B1M channel. (2) Below is my summary of the key areas discussed.

Infrastructure to support 21st century growth

There is an acute need to develop infrastructure to support 21st century economic growth. With infrastructure projects in the pipeline to the value of £600bn (3), it is time to transform our railways, roads and airports and position the UK and Europe as a global leader. 

Time to embrace innovation

The construction industry knows it needs to change to meet the demands of tomorrow. While many of our clients are diligently preparing for a digital revolution, some businesses in the sector are failing to do so. EY’s Global Construction & Engineering survey (4) in May 2019 revealed only 25% of firms had a digital strategy with just 9% comfortable that they were on the right end of readiness.

An impromptu poll – carried out by a show of hands from attending delegates – revealed more alarming results with 2% confident they had the skillset and access to accurate data. 

More encouragingly, a third said they were motivated, excited and eager to embrace change. 

In May 2019 revealed only

25%

of firms had a digital strategy

Disruption is here – transform or watch from the sidelines? 

Transforming business as usual operations into a model fit for a digital future is a challenging task. Low levels of capital investment mean that opportunities to address legacy issues around time, cost and safety are limited, but failing to invest in solutions that could boost productivity is counterproductive.

New technologies and new competitors are emerging so quickly that a strategy focused on a single technological solution is a major risk. Leaders need to attract or develop the right talent to fully exploit their digital agendas.

“If companies do not have the financial resource and are not prepared to invest in digital, others will fill the gap” says Erin Roberts, EY’s Global Construction & Engineering Sector Leader.  The pressure to react is heightened by the rise of newcomers with business models that will inevitably disrupt the industry. A surge in entrepreneurial start-ups with experience and backgrounds in digitalization and robotics are finding solutions in modular using Business Information Modeling, data analytics and project management. 

End to end solutions 

One example is a US company 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 site.

All aspects including design, procurement, fabrication, project management and construction means that they are effectively creating their own supply chain, providing greater control over schedule and a pricing advantage due to the elimination of supply chain mark ups.

Low margins

Construction can sometimes be a low margin business and any technology that can reduce costs by 1 or 2% would be a huge differentiator, particularly in a sector where 2% is the norm compared to circa 30% in other sectors.

Low margins also make investment decisions difficult. The UK historically spends 1% of GDP on R&D, while the US spends even less at 0.5%. In contrast Asia spends four times as much as the US and twice as much as the UK at 2.0% and above. (5)

Government turnaround on R&D

After a long period of decline, central Government wants more public and private sector investment in science and innovation. In his first big policy speech of the election campaign, Prime Minister Boris Johnson vowed to double government research and development spending to £18 billion within five years as part of a ‘new wave of economic growth’, promising to ‘level up’ industry in the regions and lead a ‘clean energy revolution’. (6)

Yet the industry faces a broader range of challenges than low margins and a technological revolution, that of zero carbon emissions and the war of competing for talent.

Unleashing people potential

We know the current labour intensive business model is not sustainable, with productivity levels far below that of other sectors. For years, the industry has seen too many talented individuals lured away by sectors deemed more attractive. A buoyant job market with 32 million in employment (7) the age trap in which construction finds (8) itself and the status of EU nationals post Brexit all compound the problem.  

How we consume information

Fred Mills, Founder of the B1M channel reminded us that how we consume information has changed immeasurably.  Newspaper advertisements and recruitment fairs no longer capture the attention of the masses. YouTube is the second largest search engine in the world, where 30 million visitors each day (9) start their information and entertainment search – a staggering 300 hours of video are up-loaded every 60 seconds.

Fred has a mission “to fundamentally change the perception of this industry” and ensure everyone loves construction as much as he does and in the process reach a billion viewers. He is already on the way…

Conclusion

The level of engagement, debate and Q & A throughout the Roundtable was testament to the value of these events. Developments in technology and AI and should be embraced by the sector. Technological advances and robotics will allow the same decisions to be made but faster, more accurately and with greater opportunities for collaboration. As our disrupters proved, the future is exciting, challenging and the ‘new’ construction & engineering model will be seen as an exciting and attractive career proposition for the next generation.

 

Summary

There is a critical need to develop infrastructure to support 21st century economic growth in the European Construction and Engineering industry. A ‘new’ construction and engineering model, which harnesses the power of AI and technological advances, should be embraced so that so that decisions can be made faster and more accurately. These advances will have the added benefit of making a career in the industry a more exciting and attractive prospect for the next generation of talented individuals. 

About this article

By

David Wilson

EY Global Real Estate, Hospitality and Construction Assurance Leader

Global Assurance Leader in Real Estate, Hospitality and Construction. Auditor of all classes of real estate. Helps clients prepare for changes in accounting requirements. Enjoys sailing and golf.