Adam Hyde, co-founder and chief executive of Keepsite Software, delivers this week’s #techtuesday comment with a lesson in how the dual problem of stagnant productivity and low profitability in construction can be solve with tech.
Productivity in construction has not meaningfully improved in more than 50 years, writes Adam Hyde, co-founder and chief executive of Keepsite Software. The reasons for this are well known and largely boil down to complexity across the supply chain and the projectised nature of the industry. But this conceals the fact that the industry is also being asked to do more with less. Projects are on average larger and more complex than ever. Important and beneficial regulation, for example to improve health and safety, places additional responsibilities on project teams and the lack of a common industry management platform means that projects continue to be managed in isolation from each other. This isolation prevents optimal resource allocation across each organisation’s portfolio and prevents the learning over time that has been instrumental to productivity gains in other industries.
More tangible than industry-level productivity is another pervasive problem: firm profitability. At face value, it takes a brave person to start a contracting business. Even the top 100 firms in the UK construction industry have an average net profit margin of 3% (median only 2.5%), and these margins are generally volatile from year to year. Construction is a volume-based business, but it is also a highly cyclical business and that kind of margin is not enough to provide operational stability and consistency, let alone incentivise investment in innovation.
These two problems – stagnant industry productivity and low firm profitability – have the same underlying causes. This is where Keepsite sees the greatest and most exciting opportunities in construction.
“The reason portfolio management is so essential is because only when we start managing all our projects as one single portfolio can we share risk, optimise resource allocation, achieve economies of scale, and take on more projects for any given level of inputs.”
Productivity stagnation has not improved even as digital technologies have transformed other industries. This is a paradox because, while the industry does remain chronically under-digitised, billions have been spent on construction technologies. In recent years we’ve seen the proliferation of technologies intended to help deliver projects better, including task-specific workflow apps, augmented reality, generative design, drones, robotics, wearable tech, etc. While these technologies all have value, their application has not yet had a meaningful impact on the underlying problems of productivity and profitability. We would argue that these technologies, especially where they don’t combine into a well-integrated management system, can create more complexity, making it more difficult to scale construction businesses, and improve productivity.
Moreover, while these specific technologies are essential and will transform aspects of project management, each new project will have different technology requirements and so such technologies are not necessarily scalable across project-based businesses. A common platform that enables firms to easily scale up (and take advantage of specific technologies) and, importantly, scale down from time to time, will again help with the cost effective adoption of these types of tech.
What technologies might solve these underlying problems?
A recent McKinsey report argued that mega-projects should have an ‘industrialised project-operating system.’ In construction, this translates to a common platform to help structure project relationships, incorporating the managerial/administrative and technical aspects relevant for any given project.
Keepsite agrees with McKinsey’s conceptual approach and believes that this operating system approach can and will underpin the entire industry over time. Construction is an industry based on inter-dependence. In all cases an entire construction team is instrumental to achieving project success, regardless of whether the project happens to be ‘mega’ or not. So a common underlying platform, or operating system, makes sense.
An operating system of this nature will form the transaction and interaction layer for construction projects. On top of this operating system, third-party software developers, including property and construction firms, will take advantage of pre-packaged workflow tools or build their own. Each party will interact with the operating system via the web browser or mobile applications. Every underlying transaction and interaction occurs within the system regardless of whether it is a financial transaction, a document issuance, or a request for information. Workflow diversity can be efficiently accommodated, and scaled.
This operating system approach provides and enables continuity of relationships and information over time, a necessary precursor to industry learning. Very few firms exist to deliver one single project. Despite this, the tools that are currently available reinforce managing projects in isolation of one another. With these existing tools, all of the relationships, expertise, and experience gathered during a project are lost because of a lack of system to capture that knowledge.
“Resolving complexity across the supply chain and helping firms scale by adoption of useful management tools embedded within a common management platform can liberate us all from the administration and compliance burden that holds us back from realising the productivity gains a digital transformation can bring.”
The operating system approach, which Keepsite takes and McKinsey endorses, enables the integration of individuals and their organisations, and allows these organisations to efficiently work together in the context of construction projects. The approach dramatically simplifies collaboration within each individual project.
It helps organisations manage all projects as an integrated portfolio. Over time, this way of working allows for project information and the relationship networks to be retained and analysed so that each firm can learn and improve over time. Ultimately this approach will help construction firms achieve economies of scale, which will benefit not only contractors but also asset owners and construction clients.
This is the set of challenges we are working on at Keepsite. Keepsite provides a platform that each project team can use to share information and communicate with each other. It also provides features so that each firm on a project can manage all their individual projects as a well-integrated portfolio. The reason portfolio management is so essential is because only when we start managing all our projects as a single portfolio can we share risk, optimise resource allocation, achieve economies of scale, and take on more projects for any given level of inputs.
Increasing investment capital in construction and accelerating the transformation
An underlying platform will help numerous technologies in construction to penetrate the industry and achieve scale, and we’ll see new investment on the back of that. For example, an underlying platform can help BIM software and processes to be adopted more comprehensively, and faster, across the industry, and this will further accelerate productivity gains.
Construction firms, taking a portfolio-management based approach, will be more stable and able to direct larger and more consistent capital flows to research and development. Moreover, as it stands today, equity investors, which can provide a huge pool of exogenous funding to construction, struggle to assess the construction technology space because new technologies
1) often appear to be substitutes for one another and,
2) very few seem able to clearly demonstrate return on investment and penetrate the market and achieve scale.
There are notable exceptions in this space. If a common platform exists, it can help technologies scale up in our industry, rendering a more coherent view for investors of what technologies can be transformative. This will make it easier for investors to assess opportunities and back bold ideas and promising early stage companies.
Construction is a huge and growing industry. It is also an industry holding back good people from doing great work. Resolving complexity across the supply chain and helping firms scale by adoption of useful management tools embedded within a common management platform can liberate us all from the administration and compliance burden that holds us back from realising the productivity gains a digital transformation can bring.
