Technology

Exploring Digital Transformation for Construction

Digital transformation is starting to take hold in the construction industry, improving productivity and lowering costs.
By A. Vincent Vasquez
January 11, 2019
Topics
Technology

Episode 1

This is the first article in the Precision Construction series, which explores the application of the Internet of Things to digitally transform the construction industry, ultimately with the objective to improve labor productivity, reduce costs and enhance safety. Articles generally follow a five-layer framework, described in Episode II, Simplifying Complex IoT Solutions, that makes it easier to understand digital transformation solutions. Other articles in the series are: United Rentals Drives Efficiency & Excellence with IoT, United Rentals Helps Customers Optimize Equipment Rental, Robotic Masonry, Mixed Reality for Construction: Applicability and Reality, Taking Environmental Monitoring to a New Level and Digital Transformation – Enabling New Business Models for Construction. To learn more about the various technologies described in this series, visit PrecisionStory.com.

Why should contractors care about digital transformation for construction?

Globally, the construction industry is a large and important sector, representing more than 17 trillion dollars in 2017, and is expected to grow to more than 24 trillion by 2021. It employs about seven percent of the world’s working-age population. In the U.S., construction is one of the top five industries, joining healthcare, technology, retail and non-durable manufacturing industries and contributes 4.3 percent to the GDP..

Unfortunately, while global labor productivity has increased over the past two decades by 2.8 percent, and manufacturing has seen a growth of 3.6 percent, construction has been stuck with the worse growth in labor productivity across all industries at just one percent per year. To put this into context, according to McKinsey, if productivity growth in the construction sector had matched that in manufacturing over the past 20 years, the world would be $1.6 trillion (2 percent of GDP) richer each year.

Why the low productivity growth in construction?

The problem is not necessarily a lack of emerging technology to reduce labor requirements and to make deploying labor more efficient. In fact, there are many examples of this, such as the use of robotics, drones, augmented reality, networked heavy equipment and more.

Rather, the problem is at least three-fold.

First, the construction industry has historically not been incentivized to adopt new technology. The cyclical nature of this sector means that investing in machinery that makes labor more efficient is risky because it results in higher fixed costs during downturns. But in contrast, it’s easier to lay off workers, enabling firms to survive during market downturns.

However, this approach has limitations, as it’s widely understood that there is a labor shortage in the construction industry. According to the Bureau of Labor Statistics and the National Association of Home Builders, there are currently 143,000 vacant construction positions nationwide.

During the last recession, many of the skilled workers were unable to find employment, so they dropped out of the construction industry and never returned. Compounding this problem, younger workers are less likely to consider construction as a viable career option, as parents increasingly steer graduates to four-year colleges and white-collar careers. Not to mention, the prospect of spending sub-zero winter days working in a heated office rather than toiling outside in the freezing cold laying bricks is a strong factor. The net result is that as older workers retire, there are fewer young people ready and willing to take the newly vacant spots.

Second, the industry is largely fragmented, and as a consequence has taken less advantage of standardization to improve worker efficiencies. In the US, less than 5 percent of builders work for construction firms that employ more than 10,000 workers, compared with 23 percent in business services and 25 percent in manufacturing. This in concert with the fact that contractors are often building custom structures means little productivity gains have been realized through standardization. Contrast this to how the advent of cloud computing has improved productivity in data centers by standardizing the performance, availability, security and change management of IT infrastructure.

Third, the construction industry has yet to leverage digital technology to make the transition to services-based “as-a-service” subscription models that are becoming more and more adopted across other industries. Uber is a classic example of ride-as-a-service that is transforming the transportation industry. In the retail industry, Amazon Prime has turned more than 100 million households into monthly subscribers. And, of course, software-as-a-service has completely changed the way software is purchased today.

So, is digital transformation (finally) starting to take hold in the construction industry with one driver being improving worker productivity? After all, only the retail industry operates with thinner margins than those in the construction sector, so it would seem that improving worker productivity as a means to lower costs would be a major consideration for all builders, rental companies and manufacturers.

The answer is a resounding yes, as some of the true leaders in the industry have begun to take the initiative to deploy digital technology (or what is often called the Internet of Things) to transform the construction industry, ultimately improving labor productivity, reducing costs and enhancing worker safety.

For example, United Rentals retrofitted its entire fleet of more than 450,000 pieces of non-connected construction equipment in the U.S and Canada with networked, telematics capabilities as part of its Total Control solution. One contractor building a large solar energy project, which took advantage of these networked machines from United Rentals, saved 12 percent on its rental costs for an approximate savings of $900,000 on a $7 million project. This contractor saved not only by reducing the amount of equipment needed for the project, but also by reducing the number of (in short supply) operators required to run the equipment.

As another example, SAM the masonry robot from Construction Robotics can lay bricks at 350 per hour, whereas a typical mason can only lay 350 to 550 bricks per 8-hour day. And, of course, SAM never has to stop to warm up with a cup of coffee or take a bathroom break. Now SAM doesn’t operate on its own, but a job that once took five bricklayers and two laborers now takes two bricklayers and one laborer, saving customers 50 percent on labor costs.
These represent just two of many examples of how digital transformation is being deployed to improve productivity in construction and lower costs.

Episode 2 will explore a five-layer framework to help understand digital transformation services, followed by additional episodes that dive deeper into specific solutions.

For a deeper dive into the subject, check out Precision Construction. The book is intended for both business and technology oriented people who are truly interested in how to digitally transform their own companies. To access hundreds of Digital Construction stories, subscribe to PrecisionStory.com. The application is scheduled to launch by March 2019 and is free to subscribe.

by A. Vincent Vasquez

Vince Vasquez has more than 30 years of experience in enterprise sales, marketing and engineering. Working with 20 industry leaders, he is the co-author of Precision Construction, which teaches the fundamentals of IoT with a focus on the construction industry. He is also the co-founder and CEO of PrecisionStory, which brings Precision Storytelling—a new and innovative approach to enterprise storytelling—to market. Vince has an MBA from Stanford University, an MS in Computer Engineering from Carnegie-Mellon University and a BS in Electrical Engineering and Computer Science from the University of California, Berkeley. 

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