Real estate

Transformation Framework for the Construction Industry

By 29/11/2021 0 Comments

Introduction

The construction industry is lagging behind in technology and innovation adoption due to multiple factors such as a lack of proper R&D, informal processes, insufficient knowledge transfer, weak project monitoring, little cross-functional cooperation, and conservative industry culture. However, the industry is ripe for a transformation. Societal, economic, and environmental factors have made it inevitable for the industry to adopt newer standards and technologies that incorporate sustainability with industry practices.

The sector has unique characteristics such as multiple stakeholders working on a single project, high industrial fragmentation, highly cyclical and volatile business model, and unstable workforces, making it unique compared to other industries in an economy. In such an environment, future best practices in technology, materials, and tools; processes and operations; strategy and business model innovation; people, organisation, and culture; regulation and policies; and industry collaboration are needed to transform the sector. This swift research article by the Iqbal Institute of Policy Studies will discuss the unique challenges of the construction sector, the underlying dynamics of the industry, and what can be done in terms of an industry transformation framework.

Understanding the Dynamics of the Construction Industry

The construction industry is a complex mix of dynamic factors that make it unique and exciting to understand. Firstly, unlike other sectors where a specific set of professionals work towards achieving a result, construction projects have multiple stakeholders working together on a single task with diverse needs and interests. This means that many project managers and construction managers are required to collaborate towards achieving a single goal. At the same time, delays and cost overruns are experienced and considered a standard in every project. Secondly, the industry also shares a prominent level of fragmentation. Data shows that only a small percentage of construction companies have more than 100 employees, and the rest have less than ten workers or fewer. Thirdly, the sector is also characterised by an unstable workforce, and a majority of those who work in the industry are not formally trained in the necessary skills required. They cannot often absorb new technological tools and skills that would help make the industry more efficient and sustainable.

Although not considered one of the industry’s underlying traits, almost all the extra costs incurred during a construction project directly result from poor planning at the tendering stage. There is also an extreme level of preference given to the lowest bidder of a project, which delays approvals and compliance. Similarly, project developers do not have the total funds required to complete the project when contracting construction companies. This limits their function and increases the time needed to complete the project while also increasing costs due to inflation and rising prices of imported materials. Another characteristic that makes the construction industry a slow adopter of innovative technologies is a conservative clientele who have little faith in the prospects of newer technologies. Lastly, the construction industry is characterised by the complexity of contracts and tricky dispute resolution processes. A typical contract can easily exceed more than 1000 pages and is filled with legal complexities. Therefore, it can be easily understood that the challenges associated with the construction sector fall in the same categories as mentioned above.

Challenges in the Construction Sector

Keeping in mind the nature of the construction sector, unique challenges are faced by different stakeholders. All industries depend on research and development for sustained growth; however, in a project-based environment, where scarce resources and tight deadlines combine, this aspect of industrial growth receives little attention from the construction industry and is the main reason for the slow growth of the sector.  Another challenge is the lack of maturity in operating processes. A significant focus is on the final product instead of planning the actual construction process, leading to a considerable number of informal procedures and inconsistencies in execution. Similarly, construction projects often use the same repeated methods across several projects, each with unique characteristics. However, due to insufficient knowledge transfer from project to project, lessons learned from mistakes on one project are not applied or incorporated in the other. This makes for a firm reliance on the expertise of the project manager. Another related issue is weak project monitoring due to a heavy reliance on manual records and inadequate data collection. This also makes the identification of problems tricky and cumbersome.

In terms of challenges, perhaps the most significant is the little cross-functional cooperation between industry players and stakeholders. The conventional construction process is generally sequential, reflecting the input of the project owner, designers, constructors, and critical suppliers at different project stages. In an ideal scenario, the knowledge of each stakeholder can be exploited at an early stage of planning; however, that is seldom possible under the current methods of construction processes. Subsequently, weak collaboration with suppliers in small construction projects leads to many bottlenecks in the construction process. Large construction companies seldom plan for their material needs and make decisions on an ad-hoc basis from project to project.
Furthermore, the construction sector is also characterised by a conservative culture which limits their ability to adopt progressive solutions. This makes the entire process less efficient in terms of social, economic, and strategic impacts. Lastly, with inadequate gender diversity in the industry, attracting talented individuals is becoming more difficult. Relative to companies in other industries, construction companies also pay little attention to internal people-development initiatives.

Transformation Framework for the Construction Industry

Given the current environment of the construction industry, even a tiny improvement in processes and operations; technology, materials, and tools; strategies and business models; industry collaborations; people organisation; and regulation and policies can have a significant impact on social, economic, and environmental aspects of the industry. Reducing construction costs by only 1% can save the world $100 billion annually. Also, the global shortfall of housing and infrastructure is expected to reach $20 trillion by 2030. Closing this gap could create 100 million additional jobs and generate $6 trillion a year in global revenue. More than 30% of this additional capacity can be achieved by improving construction projects and asset management. In terms of the environmental impact, countries can now cut their emission costs and save energy by up to 30% using sustainable practices and modern technologies that reduce construction waste and encourage recycling and reuse.

Technology, Materials, and Tools

In terms of a transformation framework, the construction industry can start by adopting the latest technologies and developing state of the art materials that are standardised, modularized, and prefabricated. Advanced building and finishing materials offer great versatility and can be made to reduce a building’s energy costs. They are also far better insulators than what is being used at present in buildings. This can reduce the environmental footprint significantly and help make its maintenance more sustainable over time. Many countries are now developing prefabricated building modules that can be manufactured offsite in larger quantities and assembled later at project sites. The impact of this technology is massive as it will make the construction process cheaper and more efficient, but it will also help reduce costs and construction waste. It will also limit the harmful impact of construction on the surrounding environment by reducing dust and other harmful and toxic substances emitted into the air.

Furthermore, by introducing semi-automated construction equipment, workers can bring greater efficiency and optimisation to the process. This can help level up the output of construction projects and be a significant step in fulfilling the demand for infrastructure. Technologies like 3D printing have also stepped into the construction sector, and many companies around the globe are using 3D printers to make small housing units in record time. Taking a deeper look into the construction process and material lifecycle, it can be observed that a consumption mindset is more common rather than a circular one. Smart life-cycle optimisation equipment is a new technology that helps maintain construction equipment for more extended periods with periodic maintenance and service checks, increasing its life and use. This also saves up resources in terms of manufacturing and procurement of new equipment. Lastly, using IoT sensors and big data technologies, construction companies can also streamline their supply chains.

Processes and Operations

The next logical step is to optimise processes and operations that are associated with construction. The number one cause of inefficiencies and wastage of resources during the construction process is weak planning at the initial stages of a project. A front-loaded and cost-conscious design and planning effort can significantly reduce risks, improve cash flows, and ensure that the project is completed on time. By calculating and forecasting future costs, a construction company can better manage resources and tasks to achieve greater efficiency and productivity.

As mentioned previously, the construction sector is known for its complex contracts and legal entanglements. Making the process of contracting simple by introducing innovative contracting models that balance risk and sharing can significantly enhance the sector’s growth. This can be achieved using blockchain technologies like Ethereum, which offer multiple solutions for immutable contract making, reducing the risk of deadlocks if litigation arises in future.

Another critical step is to introduce a standard and appropriate framework for project management. Current systems are relatively advanced but rely heavily on the project manager and have very abstract levels of automation. This can be changed using Building Information Modelling (BIM) systems which can keep track of multiple sections of a project in real-time while also offering collaboration between various teams working on the same project.

Furthermore, subcontractors and suppliers play a pivotal role in the day-to-day progress of a construction project. Their effective management can be a critical factor for the smooth running of inventory and cashflows. Coupled with lean and safe construction management of operations, rigorous monitoring of projects in terms of their time, scope, and cost can transform the industry over time.

Industry Collaboration

The construction industry is known for its strong ties with multiple sectors of the economy. Cross-industry collaborations can be a difficult task if there are no mutually agreed standards for conducting business. This often leads to many bottlenecks and problems for contractors and developers. Establishing mutually agreed standards across multiple industries associated with the construction sector can significantly streamline processes. It can also help regularise costs and risks as all stakeholders can decide on a mutually agreed set of principles.

Industry collaboration is mainly dependent on the exchange of data, benchmarking, and best practices sharing. Technology can play a significant role in this regard as innovations like the Internet of Things (IoT) devices can be set up to share cross-industry data automatically. These intelligent devices only need the internet to connect to and communicate with other devices all over the globe. If a construction warehouse can use IoT devices to manage all its inventory, then the supplier will know what to expect in terms of a new order before it is made. This will change the way developers and contactors manage their resources and inventories.

People, Organisation, and Culture

The construction industry is heavily dependent on human resources. Their effective management is crucial to sustaining momentum and activity in every construction project. Construction companies are increasingly demanding strategic workforce planning, smart hiring, and enhanced workforce retention techniques. With continuous training and knowledge management of each level of worker, the construction sector can better sustain itself over more extended periods without having to worry about human resources. The transformation required in this area can come in high-performance organisations that promote a culture of incentives based on regular performance.

Regulation and Policies

A vital area for the transformation of the construction sector is the regulation and policies associated with the industry. Current developers and builders face many problems related to lengthy approval processes and complex documentary requirements by local government authorities. It has also been observed that different regions within the same country or province will also have various municipal laws that only make things difficult to develop infrastructure. Harmonisation of these laws, along with the standardisation of building codes, can greatly boost the efficiency of the construction sector. In Pakistan, the standard time for getting approval of a construction project ranges between 1 to 2 years. Implementing standards and regularising the industry will greatly impact the future of construction.

Another major trend that has gained traction after globalisation is the entrance of local and international SMEs into the open market. These companies offer specific services that are well suited for a particular task. However, their acceptance rate in the industry remains low, and their participation in construction projects is often viewed as inexperienced. Increasing the overall involvement of SMEs in the construction sector can bring much-required innovation in the industry. The construction sector can also use SMEs to execute smaller tasks in bigger construction projects effectively.

Lastly, no industry can flourish or even continue to exist without research and development. Promoting and funding R&D in the construction industry is pivotal to enhancing the industry’s ability to adopt new technologies and practices. Along with this, the construction industry also needs to invest in human resource training and development. Doing so can ensure that a steady supply of skilled workers and technicians remains and that more intellectual resources also join the industry for greater opportunities.

Conclusion

The construction industry developed at the very start of civilisation. Over the years, the industry went through several significant changes in processes and the tools used. From utilising handmade tools to robotics for the construction of homes, the construction industry has seen a massive transformation. With the rise of new technologies and the proliferation of sustainable practices in other industries, the time has come for the construction industry to adopt a framework for transformation. All need to be vital in revitalising the construction sector, from the government to construction companies.

Bibliography

Jose Luis Blanco, T. D. (2019). Governments can lead construction into the digital era. Retrieved from https://www.mckinsey.com/business-functions/operations/our-insights/governments-can-lead-construction-into-the-digital-era

Koutsogiannis, A. (2021). Construction management 101: The ultimate guide. Retrieved from https://www.letsbuild.com/blog/construction-management-the-ultimate-guide

LetsBuild. (2021). The four pillars of collaboration in the construction industry. Retrieved from https://www.letsbuild.com/blog/the-four-pillars-of-collaboration-in-construction

World Economic Forum. (2016). Shaping the Future of Construction.

Research Questions

What are the challenges that demand a transformation in the construction sector?

What are the dynamics of the construction industry?

What can be the industry transformation framework?

Key Takeaways

The construction industry is lagging behind in technology and innovation adoption due to multiple factors such as a lack of proper R&D, informal processes, insufficient knowledge transfer, weak project monitoring, little cross-functional cooperation, and conservative industry culture.

Societal, economic, and environmental factors have made it inevitable for the industry to adopt newer standards and technologies that incorporate sustainability with industry practices.

The sector has unique characteristics such as multiple stakeholders working on a single project, high industrial fragmentation, highly cyclical and volatile business model, and unstable workforces, making it unique compared to other industries in an economy.

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