Construction Industry (2/3):
Suggestions on how to evolve a jurassic industry

Archimede Mulas London 16/06/2018

In the article on the Global Construction Industry, we explored the reasons behind the lack of competitiveness of the industry promising to come back with more details, and possible solutions to improve efficiency. This will be article 2/3 on this topic, as CEO is committed to its focus on the UK industry!
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The construction industry is fragmented by nature. Different stakeholders control separate parts of the industry chain, either vertically or horizontally, hence radical changes are hard to implement. Interactions between stakeholders have always been opaque, and the industry grew used to it. The main problem lies with suppliers, who fear that transparency and globalization will commoditize their business and cut their profits. Their concern is understandable, as historically customer-supplier relationship allowed customer to squeeze suppliers in order to save as much as possible on costs. Only recently the industry dynamics have started to change and move towards developing long-term relationships.
 
When it comes to innovation, companies chronically underinvest in it.  According to McKinsey’s digitization index, construction is among the least digitized sectors in the world,. The sector’s investments are poor in terms of IT systems, communication tools, BIM, and project management. The consequent result is the low growth in terms of productivity as companies rely on old systems to monitor and execute projects. In UK and Spain, the majority of interactions Suppliers/Constructors are still made by either face-to-face meetings or phone.
 
Expenditure in R&D is less than 1% of revenues, against 3.5 to 4.5% in other sectors such as auto. The industry focuses on incremental changes in part because it feels that each project is unique. Thus, there is a "consensus" that new ideas and technologies cannot be scaled up.
 
So, how to transform and evolve a Jurassic industry? In its report on the construction industry McKinsey has identified actions in seven areas can boost sector productivity by 50–60%. These are:

• Reshape regulation: by streamlining permissions and regulations, all stakeholders can benefit from an increase in efficiency. Governments particular should focus on encouraging transparency and fighting corruption.

 

• Rewire contracts: the construction industry needs to move away from a procurement process based on cost alone and instead focus on past performance as key metric, rather than accepting the lowest bid in a tender.

 

• Rethink design: the biggest gains in efficiency would be to promote standardisation of the industry with off-site manufacturing of as many non-bespoke elements as possible. 

 

• Improve procurement and supply chain: the construction industry should copy best practises from other industries and promote digitalisation of the supply-chain and achievement of economies of scale. The relationship between construction companies- suppliers also needs to change and move away from transactional contracts towards the development of long term relationships.

 

• Improve onsite execution:  there are already four key approaches that are well known in the industry yet not universally adopted. These four approaches are: a rigorous planning process, reshaping the relationship and interactions between owners and contractors, ensuring that all pre-work is completed before starting the on-site work and careful planning and coordination of different disciplines on-site.

 

• Infuse technology and innovation: adopt new materials, and advanced automation.

 

• Reskill workers: construction companies need to retrain a workforce that is aging and changing thanks to the use of migrant workers.

 
If parts of the industry could move toward a manufacturing-inspired mass-production system that would boost productivity up to tenfold.