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Disrupt or Be Disrupted: Welcome to the Digital Transformation


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The construction sector lags behind other industries when it comes to digital transformation, and investments in research and development (R&D). Improvements in both areas are not just a matter of increasing spend, but also from focusing less on the “R”––pure research––and more on the “D”–– the applied use of innovative technologies and processes (many of which are proven in other industries such as manufacturing) which are ripe for adoption.

Across most developed economies, construction lags behind other sectors when it comes to digital transformation. Notwithstanding recent developments such as building information modeling (BIM) and offsite fabrication. A McKinsey Global Institute report, for example, puts the US construction industry just above agriculture and hunting, but behind every other sector; in a follow-up report on Europe, construction was rock bottom.

Lagging in Innovation

Construction also tends to fare badly when compared to other sectors’ investments in R&D. In the UK, for instance, construction invests less than every other major industry sector in R&D, and less than the construction sectors of other economies. At the 2016 “Construction News” Summit, it was pointed out that the UK currently spends only £43m on construction R&D, compared to £203m in France and £750m in Japan.

According to the OECD, the UK as a whole only invests 1.7% of GDP in private and public R&D, (below the OECD average of 2.4%, behind the US figure of 2.8%, and far behind the leading backers of innovation: South Korea, Israel, Japan, Sweden, Finland and Denmark, which contribute over 3% of their GDP to this area).

This poor level of investment is despite government incentives to encourage innovation, notably through a R&D Tax Credit scheme started in the early 2000s (by contrast, the US Research & Experimentation Tax Credit system was introduced in the 1980s). The UK Tax Credit system dealt with claims totaling nearly £2.5 billion in 2017, but construction’s share of this was miniscule. Comprising around 7% of UK GDP, construction accounted for under one percent of total claims, with the industry averaging just £23 million per year over the past three years.

Civil engineer and Invennt business consultant Tim Fitch claims that it’s a “perception problem.” In a recent article he says:

“Unfortunately, most people think that "real R&D" is carried out in laboratories by people in white coats. But whether you're overcoming specific ground conditions, adapting equipment, creating new processes or developing better, safer, or greener methods of construction, you are almost certainly undertaking R&D.”

He argues that if innovation accounted for just 1% of UK construction's turnover (£145 billion per year), then potentially over £1 billion in R&D Tax Credit claims could be made.

Modernize or Die

The latest in a long string of UK government and industry reports urging construction to innovate and modernize was published in October 2016. In the bluntly titled “Modernise or Die,” author Mark Farmer highlights the opportunities to exploit BIM and invest more in innovative products and processes. He notes the construction sector’s under-investment in R&D (around 0.1% of output) and ties it to the industry’s risk-averse culture:

“[There is] a deep-seated perception of risk within the wider supply chain, advisors and designers, commissioning clients, building control inspectors and ultimately, insurers and funders. … Negative perceptions have in turn led to many innovative approaches to construction design and construction processes immediately being considered as high risk. … The industry therefore seems to be locked into a self-fulfilling ‘chicken and egg’ impasse when it comes to investing in, technically and commercially proving (for industry and clients) and then deploying innovation at scale.”

As part of his route forward, Farmer singles out existing approaches such as BIM and Design for Manufacture & Assembly (DfMA), but also urges consideration of newer technologies such as 3D printing, drones, on-site robotics, and materials science advancements. (And, like Fitch, he talks about “an industrialized scaling up of benefit secured from the existing R&D Tax Credits Scheme”).

Disrupt or Be Disrupted

It is significant that Farmer mainly focuses on innovations that are already well known, if not yet widely adopted, and also underlines manufacturing-driven approaches (manufacturing also being a sector which invests significantly in R&D). We are seeing major shifts in other industries where digital innovations such as mobile apps, the cloud, big data, and the “Internet of Things’ (IoT) suddenly enter the mainstream and start to disrupt existing suppliers.

In 2015, IT analyst IDC predicted that by 2018, one third of the top 20 in every industry will be disrupted by digitally transformed competitors. That may be a little premature given that construction lags behind other sectors, but BIM, related digital disruptions, and applying techniques common in other industry sectors may yet transform the composition of the industry’s leading players.

The World Economic Forum/Boston Consulting Group report “Shaping the Future of Construction” identified BIM, prefabricated building components, real time mobile collaboration, and wireless IoT monitoring as the new technologies most likely to happen and have the greatest impact. So it would be a brave construction business that decided to continue doing things how they’ve always done them.

Now may be the time to be developing and applying technologies, to devise new ways of thinking, new ways of doing things, even coming up with new business models that will put businesses in commanding positions tomorrow. In short: digitalize, develop, disrupt, and dominate.