Is Construction Industry Ripe For Digital Disruption? · 2019. 4. 1. · Digital is reshaping every...

© Inlumino Consulting, 2019 | 1© Inlumino Consulting, 2018 | 1

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Jožek Gruškovnjak, MBAManaging Partner and Principal ConsultantInlumino Consulting GmbH inlumino

c o n s u l t i n g

© Inlumino Consulting, 2019 | 3

Does technology matter?

© Inlumino Consulting, 2019 | 4 4

Technology has thoroughly transformed manufacturing.

Industrial revolution Age of steam Age of steel

Age of oil and automobile

Age IT andthe Internet

Next technology revolutionDigital Age

1771 1830 1875 1907 1971 2020?

Source: Carlota Perez; World Economic Forum, BC,G,

Industry 1.0 Industry 2.0 Industry 3.0 Industry 4.0

First mechanical weaving loom1784

First assembly line1870

First programmable control logic1969

Digitalization - merging of real and virtual worlds, cyber-physical production systems


5

10

15

20

25

# of

Em

ploy

ees

(milli

ons)

MMaannuuffaaccttuurriinngg –– JJoobbss vvss.. PPrroodduuccttiioonn(1972 – 2018)

Manufacturing - All Employees

1970 1980 1990 2000 2010

25% less employees

Where have the manufacturing jobs gone?Source: FRED Economic Data, Inlumino analysis



0

20

40

60

80

100

120

5

10

15

20

25

Indu

stria

l Pro

duct

ion

–M

anuf

actu

ring

(201

2 =

100)

# of

Em

ploy

ees

(milli

ons)

MMaannuuffaaccttuurriinngg –– JJoobbss vvss.. PPrroodduuccttiioonn(1972 – 2018)

Manufacturing - All Employees

Industrial Production - Manufacturing

1970 1980 1990 2000 2010

Technology in the form of automationdrove U.S. manufacturing productivity in the last 50 years.

25% less employees

2.9 x increase in production

Source: FRED Economic Data, Inlumino analysis© Inlumino Consulting, 2019 | 6


Technology helps us do more, with less resources and in less time…

… and sometimes instigates dramatic societal change.


Construction labor productivity has not kept pace with overall economic productivity growth.

50

100

150

200

250

300

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

Labor productivity gross value added per hour worked, constant prices, index: 100 - 1996

ManufacturingGermany

ConstructionGermany

Total economyGermany

Average growth rates:Germany

Total economy 1.4%

Manufacturing 2.5%

Construction 0.4%

Source: OECD.Stat statistics database, Inlumino analysis

PPrroodduuccttiivviittyy –– CCoonnssttrruuccttiioonn vvss.. MMaannuuffaaccttuurriinngg vvss.. TToottaall EEccoonnoommyy


Construction labor productivity has not kept pace with overall economic productivity growth, and the gap is even wider in Slovenia.

50

100

150

200

250

300

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

Labor productivity gross value added per hour worked, constant prices, index: 100 - 1996

ManufacturingGermany

ConstructionGermany

ManufacturingSlovenia

ConstructionSlovenia

Total economySlovenia

Total economyGermany

Average growth rates:Germany Slovenia

Total economy 1.4% 2.6%

Manufacturing 2.5% 4.8%

Construction 0.4% 0.5%

Source: OECD.Stat statistics database, Inlumino analysis

PPrroodduuccttiivviittyy –– CCoonnssttrruuccttiioonn vvss.. MMaannuuffaaccttuurriinngg vvss.. TToottaall EEccoonnoommyy

© Inlumino Consulting, 2019 | 10© Inlumino Consulting, 2019 | 10Background photo: Michael Molloy Photography

INTERNAL CHALLENGES EXTERNAL CHALLENGES

Poor project management and execution basics Increasing project and site complexities

Industry underinvests in digitization, innovation, and capital

Extensive regulation, land fragmentation, and the cyclical nature of public investment

Design processes and investment are inadequate

Informality and potential for corruption distort the market

IT budgets significantly below cross-industry average

Construction is opaque and highly fragmented

Unsophisticated supply chain practices Contractual structures and incentives are misaligned

Insufficiently skilled labor at frontline and supervisory levels

Bespoke or suboptimal owner requirements

Poor performance management Usually low level of sophistication of smaller construction firms - subcontractors

The productivity squeeze –multiple challenges are the cause of low productivity of construction industry.

Prod

uctiv

ity

Source: McKinsey, IBCG, Inlumino analysis


Taking everything into account, construction industry is ripe for disruption…

Large capital projects typically take

20% longer to finish...

… and are up to

80% over the budget.

R&D spending in construction runs

well behind other industries

Construction Automotive Aerospace

< 1% 3.5% 4.5%

Source: McKinsey


“ In the 32 years I’ve been in construction, this is the first time that technology is ahead of what we do. It has accelerated at a pace I have never seen… There is technology that can operate machines unmanned. Figuring out how to make technology work, in stride with our employees and partners is paramount for us a a business.”

— Global head of operations, multinational construction company


Digital is the representation of physical items or activities through binary code. When used as an adjective, it describes the dominant use of the latest digital technologies to improve organizational processes, improve interactions between people, organizations and things, or make new business models possible.

Process

Things

People

Data

Business

Mobile

Physical

Home

Digital

People-to-People(P2P)

Machine-to-Machine(M2M)

People-to-Machine(P2M)

Source: Cisco IBSG, Gartner IT Glossary


© Inluceo Consulting, 201615

Digital is reshaping every aspect of modern enterprise, causing major

disruptionin almost every industry.

Risk Optimization

Product and Service

Innovation

Distribution, Marketing and Sales

Digital Fulfillment

Enhanced Corporate

Control

Customer Experience

Decision Making

based on big data & advanced

analytics

Connectivitywith customers, colleagues and suppliers

Automationof manual

activity, replacing labor with

technology

Innovationof products, business models and operating models

§ Seamless multichannel experience§ Wherever, whenever service propositions

§ New digital products and services

§ Co-creation of new products and services

§ Improved real-time management information systems and decision making

§ Seamless integration into third parties

§ Improved targeting with customer insights

§ Embedded / automated controls and risk profiling

§ Full straight-through processing and automatic provisioning

§ Virtual servicing and administration

§ Digital marketing with higher ROI

§ Digital augmentation of traditional channels


Internet of Things

Mobile

Autonomous Things / Robotics

Augmented and Virtual

Reality

…

Cloud Computing

Cyber Security

Blockchain

Artificial Intelligence

Big Data / Analytics

Illustrative, non exhaustive

Building Information Modelling

Intelligent Constructionand Robotics

Our digitalworld is enabled and continuously expanded by technologies(a non-exhaustive list…)


Internet of Things – IoT – was generating a lot of excitement in the past few years.

Sources: IDC

Internet of Thingsnoun phraseDefinition of Internet of Things

: the networking capability that allows information to be sent to and received from objects and devices (such as fixtures and kitchen appliances) using the Internet

Source: Merriam-Webster Dictionary

Devices

Native

5G

LPWA

LTE/M

SigFox

Connectivity

Platform

EnterpriseSystems

Application

IoT

Sensors

Amazon IOT IBM Bluemix

Major focus of investment – $745B in 2019 (15.4% growth over 2018)


Preventive / predictive equipment maintenance

Construction tools and equipment tracking

Remote operation

Quality control

Material / supplies tracking

Continuous remote site monitoring

Employee tracking and monitoring (safety)

…

Consumer IoT

Phones, wearables, health & fitness, connected home,

connected car, …

Industrial IoT

Manufacturing, supply chains, utilities, transportation, natural

resources, oil & gas, …

Commercial IoT

Healthcare, smart buildings, smart cities, retail, agriculture,

energy, automotive telematics,

…Connected Car

Connected Industry

Connected Health

Connected Home

Connected Living & Working

A myriad of applications in the IoT realm…

Sources: McKinsey, Machina Research, Inlumino Consulting analysis

Connected Cities

Connected Construction


Consumer IoT

Phones, wearables, health & fitness, connected home,

connected car, …

Industrial IoT

Manufacturing, supply chains, utilities, transportation, natural

resources, oil & gas, …

Commercial IoT

Healthcare, smart buildings, smart cities, retail, agriculture,

energy, automotive telematics,

…Connected Car

Connected Industry

Connected Health

Connected Cities

Connected Home

Connected Living & Working

A myriad of applications in the IoT realm, with tremendous potential to generate economic value.

1.2

0.9

0.2

0.4

0.6

0.2

0.20.2 0.1

4.03.7

1.7

1.6

1.2

0.9

0.90.7 0.3 0.2 11.2

Factory City Humanbody

Retail Outside Worksite Cars Home Office Total

Sources: McKinsey, Machina Research, Inlumino Consulting analysis

Potential economic value that IoT can generate is from $4 to $11 trillion by 2025Potential economic impact by segment

Connected Construction


Source: “Accenture, PWC

The Term

Artificial Intelligence Encompasses many Different Technologies and Capabilities

Sense Think ActAbility to see, hear, speak, smell, feel, understand gestures, interface with your brain

Moving from automatedintelligence toaugmentedintelligence.

AI is equaling or surpassing humans in a number of other activities – playing games, driving cars, recommendations (movies, books, finance, research) etc.


artificial intelligencenounDefinition of artificial intelligence1: a branch of computer science dealing with the simulation of intelligent behavior in computers2: the capability of a machine to imitate intelligent human behaviorSource: Merriam-Webster


AI and other analytical tools have potential to create major economic impact across industries, functions and business problems…

Marketing and salesup to $2.6 trillion

Suplly-chain management and

manufacturing

up to $2.6 trillion

0.2

0.1

0.10.1

Up to 0.4

0.2Risk

Service operations

Other operations

Finance and IT

Product development

HR

Strategy and corporate finance (<0.1)

AI in construction Source: McKinsey

Project schedule optimizers

Image recognition and classification

Enhanced analytics

Supply chain optimization Outcomes prediction for

constructability issues

Machine learning for quality control and claims management

Continuous design optimization


Robots are taking over our jobs!Not really, but their impact will be significant.

DECREASING COST OF AUTOMATION

INCREASING VARIETY, SIZE RANGE AND CAPABILITIES OF ROBOTS

Index of average robot prices and labor compensation in manufacturing in the United States.1990 = 100%

Sources: EIU; IMB; Institut für Arbeitsmarkt- und Berufsforschung; International Robot Federation US Social Security data; McKinsey analysis

1%8%

18%26%

34%42%

51%62%

73%

91%100%

100 > 90 > 80 > 70 > 60 > 50 > 40 > 30 > 20 > 10 > 0

About 60% of occupations have at least 30% oftheir activities thatare automatable.

HIGHEST POTENTIAL81% predictable physical

activities69% processing data64% collecting fata

TECHNICAL AUTIMATION POTENTIAL


Rob

otic

s in

con

stru

ctio

n–

the

revo

lutio

n is

just

beg

inni

ng…

Brick laying robots

Autonomous vehicles, loaders, etc. Fully autonomous robots

Exoskeletons, intelligent tools, etc.


Don’t kickthe robots…


inluminoc o n s u l t i n g


…they may remember.


BBuuiillddiinngg

IInnffoorrmmaattiioonn

MMooddeelliinnggRenovation

Programming

Conceptual DesignDetailed Design

Analysis

Documentation

Fabrication

Construction

Construction LogisticsOperations & MaintenanceDemolition

Building Information Management systems became a cornerstone entire construction life-cycle.

“Building Information Modeling (BIM) is a digital representation of physical and functional characteristics of a facility. A BIM is a shared knowledge resource for information about a facility forming a reliable basis for decisions during its life-cycle; defined as existing from earliest conception to demolition ”

NBIMS-US, 2016


Taking BIM a step further –a multidimensional (cloud based) integration platform…

Multi-dimensional

BIM

3D

4D

5D6D

7D

3D model§ Geometry§ Spatial data§ Specifications§ Aesthetics§ Thermal properties§ Acoustic properties§ …

4D – Scheduling§ Project planning simulation§ Lean scheduling§ Visual validation for

payment approval…

5D – Budgeting§ Elements of 3D model are

used to develop budget and linked to cost heads

6D – Sustainability§ Energy analysis§ Sustainable elements

tracking§ LEED tracking

7D – Facility Management Applications

§ Life-cycle BIM Model§ BIM As-Builts§ COBie data

population and extraction

§ …

… leading to connected everything: customer, worksite, supply chain, etc.


Planning Design & Engineering Construction Operations & Maintenance

Life-cycle Integration

User interfaces and applications

Digital / physicalIntegration layer

Equipment and sensors

Source: BCG, McKinsey, Inlumino analysis

Software platform and

control

Simulation and virtual reality Mobile interfaces and augmented reality

Big data and analytics

Cybersecurity

Additive manufacturing

3D scanning

Intelligent construction equipment and robotics

Drones (unmanned areal vehicles) Embedded sensors

Building information management – cloud based

Ubiquitous connectivity and tracking

Blockchain – smart contracts

Tech

no

log

y inte

gra

tion


Planning Design & Engineering Construction Operations & Maintenance

Life-cycle Integration

User interfaces and applications

Digital / physicalIntegration layer

Equipment and sensors

Software platform and

control

Simulation and virtual reality Mobile interfaces and augmented reality

Big data and analytics

Additive manufacturing

3D scanning

Intelligent construction equipment and robotics

Drones (unmanned areal vehicles) Embedded sensors

Building information management – cloud based

Ubiquitous connectivity and tracking

Blockchain – smart contractsBenefits of BIM enabled

processes

Conflict detection and risk mitigation

High level of customizationand flexibility

Optimization of scheduling

and costs

Coordination and

collaboration

Easy maintenance of building life-cycle

Faster drafting

without loss of quality

Improved, lower cost

sales process

Reduced sourcing

costs

,,,

38%

40%

31%

36%

59%

47%

32%

34%

46%

43%

60%

65%

36%

38%

35%

37%

44%

55%

Improved review and approvalcycles

Better performing completedinfrastructure

Prefabrication of larger, morecomplex parts

Lower risk and better predictabilityof outcomes

Improved overall project quality

Reduced conflicts and changeduring construction

A/E Firms Contractors OwnersSource: “McGraw-Hill Construction

BIM BENEFITS

“By applying the right technologies in the right way, companies can not only reduce the asset’s construction time and while life-cycle costs but also enhance the quality of processes and improve safety, working conditions and sustainability.”

— Boston Consulting Group


Case Study(initial parameters) Core Levers Impact on Life-cycle Costs1

(millions USD)

Verti

cal

Con

stru

ctio

n

Office building:§ 5 stories§ 10,000 m2

§ 30-year life cycle§ 14 months to build

§ BIM throughout the lifecycle§ Data-driven construction

planning and lean execution§ Rigorous construction

monitoring and surveillance

Infra

stru

ctur

e co

nstru

ctio

nHighway:§ 100 km (62 miles)§ 4 bridges§ 35-year life cycle§ 42 months to build

§ BIM throughout the life-cycle

§ Automated and autonomous construction

§ Condition monitoring and predictive maintenance

Indu

stria

l C

onst

ruct

ion

Power plant:§ Combined-cycle gas turbine

plant§ 25-year life cycle§ 20 months to build

§ BIM throughout the -lifecycle

§ Data-driven construction planning and lean execution

§ Smart and efficient operations and maintenance

Studies show that application of digitalization in construction can have significant economic impact.

49

41

±0% -12% -18%

-15%

285

240

±0% -19% -10%

-16%

540

476

-5% -14% -10%

-12%

◼ Design and engineering ◼ Construction ◼ Operations and maintenance

DIGITAL TECHNOLOGIES SIGNIFICANTLY REDUCE LIFE-CYCLE COSTS

Source: BCG

1 Life-cycle cost is shown as inflation adjusted net present value. The cost of equipment (e.g. gas turbines in the power plant) and of non –building related operations (e.g. fuel for the gas turbines) is excluded.


Why do digitalization of construction industry and resulting productivity improvements matter?


Low productivity hurts as constructionrepresents an important factor in both world and Slovenian economies…

6% of global GDP5% in developed countries8% developing countries

100+ million employed globally

$15 trillion estimated revenues in 2015 globally

4.8% of Slovenian GDP

6.6% of working population or

≈ 56.000 employees

Sources: McKinsey, World Bank WDI, Statistical Office of the Republic of Slovenia


... so, improving productivity and overall effectiveness could have a major economic impact.

Boston Consulting GroupDigital transformation in engineering and construction could reduce annual costs by more than 1 trillion USD in 2025.

0.7 to 1.2 trillion USD (13% to 21%)annual savings on design, engineering

and construction in 2025

0.3 to 0.5 trillion USD (10 %to 17%)Annual savings on operations in 2025

McKinsey & Co.

Cumula tive impact

Capability bu ilding

Technology

On-site execution

Procurement and supply chainmanagement

Design and engineering

Collaboration and contracting

Regulation Enabler

8–9

8–10

7–8

6–10

14–15

5–7

48–60

POTENTIAL PRODUCTIVITY IMPROVEMENTfrom implementation of best practices – impact in %

6–7

7–10

3–5

4–5

4–6

3–5

27-38

COST SAVINGS

%

50 – 60%productivity boost

27 – 38% potential cost savings

If construction productivity were to catch up with the total economy, the industry's value added could rise by $1.6 trillion a year(meeting 50% of world’s infrastructure needs or boost global GDP by 2%).


If 87% of business executives expect to be disrupted1 by digital, how come less then half are preparing adequately?

1 Source: MIT Sloan Management Review, 2018; 451 Research Voice of the Enterprise Digital Pulse, Budgets & Outlook, 2018

11%

59%

33%

28%

23%

9%

25%

3%

8%

87% anticipate disruption

Great extent Moderate extent

Small extent

Not al all

Strongly agree

Organization is adequately preparing for disruptions projected to occur in

my industry due to digital trends.

To what extent do you believe that digital technologies will disrupt your industry?

Agree Neither agree or disagree

Disagree Strongly disagree

44% are preparing adequately

Execution39%

Evaluation31%

`Consideration21%

No strategy9%

When it comes to digital

transformation, more businesses are laggards

than leaders.


Assets Usage Labor

Sector Ove

rall

digi

taliz

atio

n

Digi

tal

spen

ding

Digi

tal a

sset

st

ock

Tran

sact

ions

Inte

ract

ions

Busin

ess

proc

esse

s

Mar

ket

Mak

ing

Digi

tal

spen

ding

on

wor

kers

Digi

tal c

apita

l de

epen

ing

Digi

taliz

atio

n of

wor

k

ICTMedia

Professional servicesFinance and insurance

Wholesale tradeAdvanced manufacturing

Oil and gasUtilities

Chemicals and pharmaceuticals

Basic goods manufacturingMining

…

Personnel and local servicesGovernment

HealthcareHospitality

ConstructionAgriculture and hunting

Relatively low digitalization

Relatively high digitalization

McKinsey Global Institute industry digitization index; 2015 or latest available dataUnfortunately the construction industry is among the least digitalized.

Sources: McKinsey


0.4%

16.7%

19.1%

20.3%

36.9%

46.0%

54.2%

64.6%

Other

Decline in business performance

New standards in regulatory andcompliance

Lack of expertise, literacy andunderstanding of digital trends

Proactive investment to fightdisruption

Growth opportunities in newmarkets

Increased competitive pressure

Evolving customer and employeebehaviors and preferences

4.2%

6.1%

10.6%

19.7%

23.7%

24.6%

30.1%

30.5%

30.5%

30.9%

31.4%

Respondents have notexperienced any of these…

No leadership driving efforts

Lack of data or ROI to justifyvalue of digital transformation

No sense of urgency

Human barriers (e.g. politics,egos, sabotaging, fear)

Legal, risk management, and/orcompliance concerns

Lack of staff resources

Company Culture

Lack of budget

Digital transformation is viewed asa cost center

Low digital literacy or expertiseamong employees and leadership

Source: Altimeter Digital Strategist Survey, August 2017

KEY DRIVERS OF DIGITAL TRANSFORMATION TOP CHALLENGES FOR DIGITAL TRANSFORMATION

While drivers and potential benefits are clear, digital transformation is not easy…




Smart SensorsAnalytics

Cloud

Big Data

Omnichannel Experience

Business skills, competencies and mindset

Data strategy

Compliance and risk

management

Funding and incentives

Business models

Operating model

Organization’s clock speed

Business and technology architecture

Value Impact of Technology

ChangeX

Value Impact of Technology

Change15X

While technology is an important enabler, digital transformation requires enterprise change not just technology change.

It is about rethinkingstrategy, culture, talent, operating models andprocesses.

67% of business leaders’ questions relate to technologies

33% of business leaders’ questions relate to enterprise changes

Source: Gartner, Inlumino Consulting analysis


So what should leadersfocus on?


To succeed in digitalization organizations must get right the five critical areas…

Digital Strategy – end-to-end evaluation of digital opportunities and their alignment with overall strategy.1

Operating Model – new infrastructure needed to execute: talent, skills, processes, governance, organization, partnerships, …2

Technology Architecture – scalable and expandable core intelligent architecture, making intelligent use of data, software and cloud base capabilities.

Portfolio Approach – outcome driven approach to investments managing both short and long term objectives.4

5Value Measurement – the value case for solutions should be defined upfront and results should be tracked closely and shared, so the future projects can deliver additional value to the organization.

3


“ Other industries have shown that first movers can build a sustainable competitive advantage. In the construction sector, this is also likely to be the case. Over the next decade, these winners of tomorrow will take the lead in technology innovation and digitization. Resisting change is no longer an option.”

McKinsey & Company


“Be strong to stand alone, smart enough to know when you need help and brave enough to ask for it.”

− Multiple authors cited





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Is Construction Industry Ripe For Digital Disruption? · 2019. 4. 1. · Digital is reshaping every...

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