RE-BUILD : The Premise
Updated: Sep 27, 2021
Conventional methods of construction which have been synonymous with development for over a century cannot guide the way we build for tomorrow. A fundamental change in design and construction is pertinent. One that is efficient, sustainable and befitting to the zeitgeist of the modern era.
Architecture has always strived to push boundaries of scale, material and spatial quality fueled by the imagination of the architect and the values of the society. Built architecture is dependent on the means of production of elements for construction such as bricks, stanchions, beams etc. hence its history is closely linked to the sequential chronology of the three technical ages (The age of hand-making, age of mechanical-making and the age of digital-making). The concept for RE-BUILD germinated from my frustration with the inefficiencies of conventional methods of Design and Construction, Trials with Pre-Fabrication and the vision for the future of Architecture.
Studying the McKinsey report on the future of Construction in the decades post the pandemic, we observe that a paradigm shift in the way we will ultimately design and construct is inevitable.
Construction is the largest industry in the world, yet, even when not plagued by unprecedented crises, it is not performing well. It represents 13 percent of global GDP, but construction has seen a meager productivity growth of 1 percent annually for the past two decades. Time and cost overruns are the norm resulting in low customer satisfaction, and overall earnings before interest and taxes (EBIT) are only around 5 percent despite the presence of significant risk in the industry.
A changing market environment, technological progress, and disruptive new entrants will trigger a paradigm shift. While frustration with the status quo shall trigger the evolution of the industry, sources of disruption already in existence shall act to serve as catalysts to this change. A 2016 McKinsey analysis found that construction projects typically take 20 percent longer to finish than scheduled and are up to 80 percent over budget, leaving customers dissatisfied and resulting in complex and time-consuming claims processes. The industry has also been amongst the slowest in adopting technology. A low degree of digitization and standardization combined with a fragmented value chain has resulted in low barriers to entry, limited economies of scale and inefficiencies. Although projects increasingly require more experience and skill to execute, construction work still relies on a large share of manual work being completed by a largely blue-collar workforce. Construction firms typically grapple with a significant shortage of skilled labor, which hampers both existing operations and innovations such as digitalization. For mid to small and micro projects, the system is further fragmented by relying on individual contractors and the unorganized labor sector. From a logistical standpoint, the size and weight of materials and components entail a regionally fragmented setup. Logistics are further complicated by the large number and variety of components and suppliers as well as the delivery by separate parties of different subcomponents of the same products. The construction industry is extensively regulated, subject to everything from permits and approvals to safety and work-site controls. As each geography has its own local building codes, companies that operate in multiple geographies must educate themselves on each market, which makes standardizing products, materials, or processes more difficult. In many geographies, the public sector mandates lowest-price rules in tenders, making competition based on quality, reliability, or alternative design offerings more complicated.
Construction is not the first industry to encounter low productivity and disruption across the value chain. Lessons can be learned from others that had similar traits and encountered the same challenges. Shipbuilding. A geographically fragmented market structure meant that local shipyards covered the full process. Ships were manually produced in a bespoke and project-based setup over long periods of time and with a limited degree of repetition and standardization. Commercial aircraft manufacturing. In addition to sharing many of the same characteristics as shipbuilding, commercial aircraft manufacturing required a high degree of specialized trade skills (for example, engineering and physics), and the cost of failure was (and still is) very high. Car manufacturing. Historically, automakers produced cars one by one with limited use of best practices and standardization. Design and production required a high level of specialized trades such as engineering. By studying these industries, clear patterns emerge regarding shifts and changes to the industry value pools. In each case, an eventual transformation was preceded by a set of underlying industry issues (such as low productivity and dissatisfied customers). Innovation in production technology and new best-practice work methods kick-started the journey.
Nine Disruptive Agents that will reshape the construction ecosystem in the decades to come :
1. Product-based approach: In the future, a large share of construction projects will be built using customizable, modularized elements and components produced using standardized processes in off-site factories. The modules and elements will be shipped and assembled on site. Production will consist of assembly line–like processes in safe, non hostile environments with a large degree of repeatability.
2. Specialization: To improve their margins and levels of differentiation, companies will likely increasingly specialize in target niches and segments (such as luxury single-family housing, multistory residential buildings, hospitals, or processing plants) in which they can build a competitive advantage.
3. Value-chain control and integration with industrial-grade supply chains: Companies will move to own or control important activities along the value chain, such as design and engineering, select-component manufacturing, supply-chain management, and on-site assembly. Companies will be able to achieve this goal through vertical integration or strategic alliances and partnerships by using collaborative contracting and more closely aligned incentives.
4. Consolidation: Growing needs for specialization and investments in innovation—including the use of new materials, digitalization, technology and facilities, and human resources—will require significantly larger scale than is common today.
5. Customer-centricity and branding: With productization—that is, turning development, engineering, or construction services into easy-to-market products or solutions—and specialization in the industry, having a compelling brand that represents an organization’s distinctive attributes and values will take on added importance.
6. Investment in technology and facilities: Productization implies a need to build off-site factories, which requires investments in plants, manufacturing machinery and equipment (such as robotics to automate manufacturing), and technology.
7. Investment in human resources: Innovation, digitalization, value-chain control, technology use, and specialization in end-use segments all increase the importance of developing and retaining in-house expertise, which will compel players to invest more in human resources.
8. Internationalization: Greater standardization will lower the barriers to operating across geographies. As scale becomes increasingly important to gaining competitive advantages, players will increase their global footprints.
9. Sustainability: While sustainability is an important decision factor already, we are only at the very beginning of an increasingly rapid development. Beyond the carbon-abatement discussions, physical climate risks grow as the scale increases.
Public and private - sector developers of real-estate, infrastructure, and industrial projects orchestrate the development process from beginning to end: securing financing, sourcing land, and scoping and overseeing value-adding projects. As customer expectations continue to evolve rapidly, developers look set to increasingly specialize and invest in productizing and branding their offerings, which will increasingly require multinational scale and leave behind those working in traditional ways. Specialization will be key to attract customers, and developers need to decide whether they want to focus on slivers, whether they want to develop individual opportunities or also establish quarter or precinct capabilities, and which of the required capabilities they need to own versus source. Further, a deep understanding of customer needs, by segment and subsegment, will be at the heart of the most successful strategies, whatever the sector or asset type; without it, the assets that have been built can quickly become obsolete.
Disruption could fundamentally change what it means to be an engineer or an architect in the construction industry. Historically, these professionals have applied their considerable expertise to create designs and specifications for individual projects: each design optimized to meet the project’s unique requirements. The coming years will see these stand-alone professional-services firms closely collaborating with productized and branded developers, off-site construction firms, and highly specialized contractors as an integrated R&D-like function. The firms will increasingly add value through the standardization of structure and subsystem designs, by developing standardized design libraries of products in their target segment that are highly integrable to allow for a customizable whole. This modular design will be reused for a large set of construction projects. In this way, design and engineering firms could influence industry standards. As the industry shifts to a more product-based approach, the challenge for engineering and architecture firms will be to reskill their workforces and hire the right talent to design in this new world.
A large share of inputs used in construction projects involve processing raw materials such as cement, steel, wood, or glass. Many players in this sector are already large, global firms with slower-moving shifts in value-chain dynamics. The most pronounced impact might arise from a transition to new, lighter weight materials, as well as higher requirements on sustainability, recycling, and waste reduction. While the industry should benefit from long-term (post-cycle) growth of the construction market, the volume of traditional materials, such as the amount of cement, looks set to decline on a per building basis (including due to a rise of lighter-weight off-site module production and, consequently, less strong foundations). Digitalization and consolidation of the distribution and contracting landscape may alter logistics and customer interfaces. It will be critical for the industry to stay ahead of those developments, raising the pace of innovation and the level of customer intimacy.
Today, off-site construction companies primarily manufacture building elements, structures, or modules for real estate—but also for industrial structures and infrastructure like bridge segments. Overall, off-site construction is still a relatively young and immature part of the larger construction ecosystem, with high fragmentation and smaller-scale players that use mostly manual labor. All nine of the shifts described in this report are expected to positively shape future demand for off-site construction in one way or another, and the collective effect is expected to be the most significant throughout the ecosystem. Led by a product-based approach, standardization, and sustainability, the coming years will see a shift to manufacturing a broad range of products off site, typically on a manual or automated production line.
In conclusion, disruptive change is coming to the construction industry, and it will affect every segment of the value chain. Revenues and value added will be redistributed, in some cases dramatically. Disruption has already begun and will only accelerate in the coming years.
Source : McKinsey 2020 'The Next Normal In Construction'