Wednesday, June 28, 2017

Large companies facing digital death

Large construction firms are missing the digital revolution - and it is killing them, says Tim Rook*.

It is incredible in this day and age and after the way digital technology has transformed our lives that the construction industry still thinks about IT as a separate part of the business and is still discussing its ‘potential’.

The industry’s leadership do seem to be aware that a digital revolution has taken place, but they seem paralysed by it. Their corporate IT is killing them.

What few seem to grasp is that clients don’t care about construction; in fact many actively dislike it. They don’t want a project – they want an asset; a quality end product that is either an investment vehicle or a building customised to support their core business.

Digital is already a fundamental part of how our clients do business and they are puzzled by construction’s failure to work in the same way. They must be dumbfounded that industry roundtables take place where the possibilities of big data are still being debated.

IT is still in its own box and, because firms operate on the slimmest of margins, the cost pressures and security concerns mean staff don’t have access to the latest and best technology, which means they can’t even begin to imagine how it could improve their business.

Wake up everyone.

As the global management consultancy McKinsey and Co puts it: Unless digital is already out of its box and fully embedded in your business culture, you will struggle to survive the next five years.

Unfortunately for construction, low profit margins also make firms risk averse. Prices are pushed lower and lower and barriers to entry higher and higher – like the pre-qualification process – which make it hard for small, innovative and nimble firms to come in and change the culture.

The working environment is hugely pressurised, which is why the industry has such a massive problem with mental health. People are given little or no space to think, innovate and improve. Construction suffers from inertia and resistance to change – there is a deep rooted fear of digital replacing traditional roles; so people resist it and the sector lacks the radical leadership to drive the transformation it needs.

Software and digital tool development doesnt come naturally to construction. Traditionally, designs are started, commercial models built and contracts signed (at least in theory) before construction starts; then change is resisted at all costs.

In the digital sector it is the opposite: Ideas give rise to concepts, which are built and tested with clients in very fast cycles with designs emerging as more knowledge is added, and commercial models arise from doors opened by new technology with product engineers playing a central role.

We need to wake up and catch up.  The pace of change is fast and is getting faster: In 1980 it cost $100m and took five years to get a major software package to market; by the 2000’s it was £10,000 and three months, today it is even faster and cheaper. 

Only the most able and nimble will survive. Fewer than 10 of the current FTSE 100 were there in 1984 and 50% of the Fortune500 have emerged since 2012. Construction firms are looking worryingly like dinosaurs.

The future is hard to predict, but some things are already known. Digital will remove vast amounts of cost from construction in ways not yet imagined. Some examples could be the introduction of smart contracts on blockchain, using machine learning to make real time adjustments to energy controls.

Social media and consensus algorithms are already being used to develop designs; artificial intelligence (AI) can analyse products for use in building information modelling (BIM) so doing away with the need for common data templates; and immersive technology is improving designs and evaluations while also allowing logistical planning through role-play.

The operators of data centres are using designs informed by energy data and modular homes are being imported from China – all aimed at speeding up delivery and improving quality – and positioning smart tech firms like Google at the heart of a new, evolving industry.

Look at what is happening in the legal profession where data is automating much of the ‘drudge’ legal work allowing law firms to slash staff numbers.

The leading-edge of digital is in distributed technology, using a wide base of users and computers to design, to provide security and to remove centralised barriers to progress. The most cited implementation of this is blockchain and crypto-currency, but the potential is so much wider.

Productivity gains though better information handling, visibility of actions, total supply chain security and system availability are all possible, and at far reduced cost.

Digital could solve the paradoxes that have haunted construction for so long. For example, it is now possible to have both speed and accuracy or to make changes quickly at low cost. The paradox of enabling people to do what they think best, but at the same time maintain a strategic direction, can be smoothed out through fast communication tools that break through the marzipan layers of middle management.

However, big construction firms are floundering with the really big paradox: Digital enables margin growth, but margin growth is required to enable digital transformation.

It is probably already too late for many of the old giants of construction – their inertia and organisational behaviour will kill them off. But construction won’t die; it will just be done by different people in different companies and in new ways, just as has happened in so many other industries.

Fast to market, high product cycle rates, small batch production and close knit teams are proven to be effective. Government mandated change funded by tax breaks is too slow and too uncertain; it is much better to enable fast paced ground-up incremental change.

So, how to make the digital transformation come about?

  • Follow the example of tech investors in backing lots of ideas with the understanding that only a few will come good - and place more emphasis on the people and teams behind the innovation rather than the return on investment;
  • Make your company approachable; don’t hide behind walls of PQQ and procurement because it is highly likely that the crucial innovation will come from outside your organisation, your existing supply chain, or even your sector;
  • Educate from the inside; think digital business not ‘business plus IT’. Everyone needs to be digitally enabled. Recruiting more IT people is a ridiculous and impossible idea because construction does not pay well enough and it further emphasises the division;
  • Provide training and time for staff to expand their knowledge, let them feel their way through the maze and don’t mandate a particular direction because that means you will miss something;
  • Make the transformation visible to everyone – including your supply chain as they will then share their expertise and insights with you.

Fundamentally, the message has to be “think speed” and don’t be afraid to fail fast and fail often – the great tech innovators of our age have already done that and look how they are dominating.

For an example of speed of thought, apply the ‘two pizza rule’ used by Amazon founder Jeff Bezos where no meeting should take place where more than two pizzas are needed to feed the whole group.  In fact, do you need meetings at all?

Be nimble; think fast; and create an inclusive culture of trust where everyone shares ideas – otherwise you won’t be able to move fast enough.

*Tim Rook is technical director at the Building Engineering Services Association (BESA).

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