Construction 2.0: it’s high time for construction companies to digitize

The building sector has recovered from the recession, and construction companies are looking towards the future again.

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Across the board, construction results were considerably better in 2018 than in previous years: for the first time, constructors managed to exceed pre-crisis turnovers. The market keeps growing, resulting in increased profitability. In short: construction companies continue to improve their financial stamina. 

Construction reconstructed 

This is partly due to the growing social importance of the building sector. Cities keep getting bigger and play an increasingly vital role. In 2050, approximately two-thirds of the world population is expected to live in an urban area, and they require accommodation. 

However, as good as this may sound, this growth also raises questions: what is the best way to organize the infrastructure and improve mobility? How can we make sure that affordable housing remains available? How can we structure cities in a way that is as circular and sustainable as possible? And how can we achieve these goals by digitizing buildings and making them smart? 

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These questions offer enormous opportunities for construction companies, both regarding the construction portfolio and the general innovation in the building sector. However, to seize these opportunities, a new way of working will be required, focusing on increasing the productivity, reducing failure costs, and improving customer experiences. Initiating the correct activities will increase the sector’s robustness to economic fluctuations. 

Opportunities abound, but we need to change our course

Turn your biggest challenges into your greatest opportunities by making clever choices and taking the initiative. For instance, extensive digitization will improve the predictability of project results and minimize failure costs, leading to increased productivity. Procurement costs can be permanently decreased by standardization and digitization of processes, as well as by adopting new ways of working across the chain.

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Moreover, the first step towards improved business efficiency and efficacy is the active use of data within the organization. Additionally, artificial intelligence can significantly enhance performance insight and process optimization, leading to a reduction in failure costs and occupational injuries. 

In long-term maintenance contracts, to improve the customer relationship and generate value, joint innovation with the client can be applied much more often. In our experience, process improvement, digitization, and the application of, for instance, analytics and the IoT often lead to chain optimization. 

You might also want to consider new business models, aimed at, for example, full circular construction and sensor-based maintenance. These business models will give purpose to your organization and create powerful experiences for (potential) customers, further bolstering your competitive position. Strategic innovation management will enable your organization to combine technological progress with an innovation culture to bring about new business. 

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You may, for instance, combine digital, modular and factory production and construction. Construction companies that successfully implement strategic innovation management will become market leaders. However, considerable investments and an entirely new way of working will be required. 

As a final consideration, talent management poses great challenges. In today’s market, it is hard to attract and retain the right talent, both in the building sector and elsewhere. New business models won’t change this. How can you attract new talent and train them as fast as possible? What are the possibilities with regard to automation? At the end of the day, it’s your staff that will determine the success of your company: they will need to embrace the innovation culture and the adapted way of working. 

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Allocate funds for the right initiatives

However, innovation and improvements do not occur of their own accord. Permanent innovation always demands permanent investments in new skills, technologies, and business models. The building sector should learn to change continuously and should fundamentally review leadership styles, agile ways of working, digitization and talent. 

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We believe several important performance indicators offer much room for improvement, including productivity, customer-centricity, and the percentage of revenue generated from new business models. To give an example, construction companies' EBITDA is currently between 1 and 4 percent, but we estimate that percentages of 6 to 8 percent can be achieved. It is this improvement in financial performance that allows your organization to free up funds for the before-mentioned investments. 

Make considered choices and follow-up on these initiatives in the proper order. Combined with the right focus and approach to change, you will be able to take a significant leap in profitability and create a business model that is future proof. 

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The first step to enable structural improvement and corresponding investments is to implement a Zero-Based cost program, which helps to finance required investments. On average, the Zero-Based cost-program results in a minimal EBITDA-improvement of 2 to 3 percent in 2 to 3 years, which can be used to fund a large portion of the change program. 

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These four steps you will have to take to prepare your organizations successfully stappen moet je nemen om jouw organisatie succesvol voor te bereiden op de toekomst. 

Change in four steps

1. Aim for permanent cost savings to create the scope of investment that allows for lasting improvements and new business models.
2. Structurally improve the current business operation, including purchasing processes, digitization across the chain, data-driven work, and strategic innovation management. Also, improve commercial skills and customer focus.
3. Change your way of working and introduce new business models. These can include vertical integration by keeping global sourcing in-house, full digital working, sensor-based maintenance, 80 percent construction from standard building blocks, the use of new materials and 3D printing, robotization, new service concepts, and closer proximity or direct supply to the end customer (B2C).
4. Introduce thorough talent- and change management, as it is likely to be the most fundamental skill to foster. An increase in digital work, the use of data, and a fast-changing work environment demand new staff skills, rendering companies responsible for the training and recruitment of talent. Alternatively, they can automate processes to remain successful. A construction company can and should change much faster, be more agile. In short, the right talent and a business DNA that enables change management will contribute to the success of new business models.

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This approach is the starting point to finance innovation in the organization. It will also allow you to differentiate from your competitors. Secure your future and build an organization that can withstand change. What are you waiting for?