The current state of the industry
‘We are not on the crest of a wave right now but we are actually entering a period of great opportunity for investment in construction technology!’
This is what Colin Smith, Software Entrepreneur, Angel Investor & NXD, highlighted during his talk at European ConTech Summit. The conference took place in London last January and was co-hosted by GenieBelt and Construction News.
Some of the most inspiring construction thought leaders were gathered in order to discuss the current state of the industry, its main challenges and the various opportunities that emerge both for construction companies and investors.
‘That’s the time to invest in construction and there’s gonna be winners and losers that emerge over the next few years’, says Colin Smith.
In order to understand, though, the true potential the building sector holds it’s a good idea to take a closer look at the past, present, and future of the construction industry.
A brief history of UK construction
The discussion around productivity and efficiency in construction isn’t new. Already back in 1994 and 1998 two very informative UK construction reports referred to the productivity challenges of the sector and some possible solutions.
According to Colin Smith, though, what was more interesting about them was the fact that both reports spotted an emerging frenzy for construction technology.
Starting from the 1994 ‘Constructing The Team’ report, by Sir Michael Latham, it identifies a number of systemic fails in the industry and it condemns the existing practices as adversarial, ineffective and fragmented.
Here are some of its main points:
- Clients should lead the implementation process. The government should do everything possible in order to become a best practice client. Private clients should also take action and establish a Construction Clients’ Forum. Both sectors (public and private) have a duty to push for perfection in design.
- Financial difficulties have played a great role in agitating problems during the building process.
- A lot of effort should be put on clearly defining the design duties in building services engineering.
- A more understandable definition of the role of Project Managers is required. When it comes to government projects higher expertise standards should be established.
- Clients should evaluate tenders not only on price but on quality, too.
As far as the 1998 ‘Rethinking Construction’ report (written by Sir John Egan) is concerned, it provides a nice overview of the building industry and the things that it could do better. In this case, manufacturing is presented as an excellent example for construction. More analytically, some of its key points could be summed up to the following:
- UK construction is one of the strongest players in the world when it comes to delivering innovative and challenging projects.
- However, the industry seems that it could do better. Low profitability and limited investments in capital, training, and R&D appear to be some of its problematic characteristics. A good number of clients in the sector appear to be dissatisfied with its progress and performance.
- There are five main pillars on which the future of construction should be based:
1. Dedicated leadership
2. Focus on customers
3. Investment in integration (both in teams and processes)
4. An agenda driven by quality
5. Dedication to people
- The sector needs to improve when it comes to building processes and project delivery. Transparency is one of the key elements for the future of construction.
- The four elements below can push for the development of the construction process:
1. Product development
2. Project implementation
3. Open supply chain
4. Production of components
- The public sector should actively try to become the best practice client and optimize quality and productivity.
The awful truth about the industry
Thanks to these two reports, we can get a good understanding of the main obstacles that UK construction was facing back in the 90’s and which are still here to a significant extent.
The cases of Carillion and Grenfell are still very recent. According to Colin Smith, such incidents will agitate the discussion about transparency:
‘Carillion and Grenfell are going to generate shock waves and lead to lots of reports and a discussion about transparency.’
But there is also a positive side to Carillion’s tragic story. It can provide valuable help with identifying the actual gaps in construction and discovering the ugly truth for the industry.
‘What’s going to happen from now on is really interesting. Perhaps it can create some gaps that the new technology providers can fill with a technology that could meet requirements which couldn’t be met before’, says Colin Smith.
He also adds:
‘The awful truth for the industry is that a few well-run firms are doing okay and the rest of them are just surviving. That’s also the case in the UK. I don’t think that this is because products are being mismanaged or because of efficiency problems. I think it is because the funding model for the construction industry is broken!’
And that’s not all. Most companies are facing a number of problems such as not being able to integrate or share their data with other stakeholders. They may have a back office system, some accounting system and so on, but things don’t work as they should.
On top of that, many firms rely on the particular preferences of certain directors or managers when it comes to selecting which software and tools they are going to implement. In other words, there is no active effort to reshape their strategy and adjust it to the bigger picture.
To make matters worse, the use of ERP software in construction doesn’t seem successful so far:
‘ERP doesn’t work in construction. It never did. In theory, ERP could come in the industry and solve these problems but truth is that I can’t remember any massive ERP success stories during the last 20-30 years’, highlights Colin Smith.
A different approach is needed
Construction teams and projects consist of many individuals from different companies, divisions, sections, special purpose vehicles. All these people should suddenly get together in a project and work harmoniously to deliver a good outcome.
One of the biggest problems is that most construction companies in the best case operate on 2 or 3% net margins. That being said, they don’t have the resources in order to train everybody and get the team to work together.
‘ When you operate on a 2-3% net margin you just don’t have the resources in the company to train everybody, get everybody working together and do all those stuff that other industries can do. So clearly a different approach is needed’, says Colin Smith.
The main characteristics of this new approach are perfectly summed up below by Colin Smith:
- It can be implemented incrementally.
- An approach that doesn’t demand process conformity across the entire piece.
- It is very light-touch. To put it simply, a solution that requires no support, no training, no implementation, no configuration.
- Most importantly, it can contribute to the bigger picture view without having to be supplied by the same suppliers.
The way forward
It appears, then, that the creation of a well-articulated ecosystem is the way forward for construction. It is essential that technology providers narrow down their scope of work and produce digital solutions which offer specific services on top quality. Like that, you can end up with a great scalable architecture which will allow for a different approach to emerge.
That seems to be the future both for technology providers and construction companies. That’s why the people who are responsible for acquiring the software within the construction companies should first have a detailed framework for integration and then choose the right tool for the job.
As Colin Smith suggests:
‘Make the core of your project really solid and then surround it with fabulous, new, light, agile applications that you can find in the market. And you do that for the tools that are in the ‘doing the work’ part of the business. The bit that makes or loses the money. And I think that’s the way forward!’
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To sum up, it becomes evident that construction is battling against the same nightmares for many years now. The request for increased efficiency and transparency is still here and the need for a new approach in the industry is more imminent than ever before.
The rising of a data-ecosystem could be the answer to the problem. For this to happen, a detailed integration strategy is required. In any case, a period of great investment opportunities is about to begin and those who will ignore them will eventually lose track of the game.