The world is rapidly – and perhaps irrevocably – changing around us, with Covid-19 acting as a catalyst.
The construction industry is at a crossroads. Many will soon face the choice of innovating or being elbowed out by those who do.
Industry methods have changed little over the past 50 years, with construction consistently at the bottom of industry innovation rankings. Its annual productivity growth over the past two decades has been only a third of total economy averages. Digitalisation is lower than nearly any other industry, and profitability is also low.
This lagging performance is a direct result of its fundamental market characteristics, as cyclical demand leads to low capital investment and bespoke projects limit standardisation. There is a dearth of skilled workers, while barriers to entry are low in segments with less project complexity. This engenders price-driven competition that impedes innovation on quality, design and other metrics. Contractual structures and incentives are misaligned and risks are passed on to other parts of the value chain rather than being addressed.
But change is coming and we expect the construction ecosystem to become radically different as it changes from a project-based process to a product-based approach.
Structures will be manufactured off site by branded product houses specialising in specific areas and entire designs will be selected from a product library either developed in house or sourced on the market.
Value chains will be vertically and horizontally integrated, and very international. Digital marketplaces will cut out the middleman and contractors will be lean entities focused on on-site execution and product assembly. Data and analytics will be key to optimise management and improve future design.
According to McKinsey, this change will affect some areas of the market more than others. It estimates that hotel, residential, and commercial construction volumes could grow 15% by 2035 through a redesigned value chain. Infrastructure is more technologically advanced and could grow 7% while industrial construction could grow 5%.
Construction companies’ greatest concerns in deploying technology and innovation are maintaining a safe job site, attracting and retaining skilled labour and maximising productivity. They struggle most with low user adoption of the tech they implement, whether due to a mismatch of expectations or lack of time and resources to deploy them.
This could be solved by aligning owner and contractor incentives. With the right contract terms that are not just driven by price, technology and data analytics could become the status quo. Better data analytics will give a clearer understanding of costs and timelines, leading to improved budgeting, greater certainty of expected margins, effective time management to avoid delays and an increase in accuracy of predicted project outcomes.
The current crisis will accelerate change in construction as it has highlighted the need for greater process transparency and control. Many construction firms have already invested in technology – most commonly, digitalisation and supply-chain control – to adapt to a changing work environment.
Safety technology is becoming key and we can expect to see a growing use of collaboration technology as businesses seek to work on a single integrated platform.
Angelica Donati is chief executive of Donati Immobiliare Group