The Future of Construction

by Brian Cavataio 04/20/2021

A brief overview of how experts and executives from leading construction companies look ahead at the future of digitalization in construction.

A Giant Sector with an Even Bigger Problem

The construction sector is one of the largest in the world economy, with about $10 trillion spent on construction-related goods and services every year. However, the industry’s productivity has trailed that of other sectors for decades, and there is a $1.6 trillion opportunity to close the gap. For years now, construction companies have been dogged by stagnant productivity and low levels of profitability.

With the advent of new technologies and the availability of structured data, many industries are in the midst of a digital transformation that is increasing their productivity levels…except construction. According to AGC and McKinsey & Company, productivity in construction has grown by a meager 2% over the last decade, while Manufacturing has seen a productivity rise of 20% on average over the same period.

This vast gap emphasizes that construction remains an industry that is still considered to be broadly antiquated. It is fragmented, highly manual, and still not able to apply digital building approaches well enough. These, of course, are various problems that still need to be resolved and offer a great deal of potential for the future.

Industry Leaders are Ready for a Change

To better understand the market, we spoke to 15 different executives from global organizations and 7 different private equity firms who are leading construction companies. We asked them their opinions on the status-quo and outlook of their industry and whether startups will play a substantial role in the digital transformation of construction.

When evaluating the status quo of digitalization from a scale of one (completely analog) to ten (fully digital), we were not surprised that 90 percent of the respondents answered with a three. In fact, the results confirmed the general sentiment that construction utilizes less digitalization than any other industry.

However, a construction phase that has already been given attention for digitalization is concordantly the digital planning, especially planning with building information modeling (BIM) software. One of the CEOs we spoke to says that construction companies have been executing projects with 3D planning tools for decades. But even for the planning phase, the degree of digital penetration seems to be too low. The transition from planning to execution, especially, requires a lot more improvement.

When evaluating the ten-year outlook on digitalization, it is clear that all of the companies we spoke with are optimistic; with 75 percent of the respondents predicting an eight on the digitalization scale, one can say that change is strongly anticipated.

So what is holding the industry back? Like in many other established industries, it seems that the historical fragmentation in the construction industry has created legacy processes, tech-stacks, and divisions of responsibility that are not conducive to end-to-end digitalization. What makes it even more difficult is that the barriers are often of cultural nature. One executive emphasized that “it is hard to get the advantages of digitalization into the heads of the construction workers.” But to get everybody on board, it is not enough to convince C-Level executives that digitalization is a good thing. You need people on the ground being in favor. They are the ones who will be working with the tools and technologies daily.

Construction Tech Startups Will the Build Bridge with Technical Legacies

To achieve digitalization and make the transformation happening startups will undoubtedly play a crucial role. Most industry experts see them as the strongest part of building the bridge between technical legacies in Construction Tech. For this, startups in the construction industry are very well advised to involve the customers in their product development at a very early stage. The start-ups that have understood this will grow with the industry and occupy a relevant role in digitizing it.

“Start-ups are a good chance to disrupt niches and sub-sectors. Thus, they can be a good complement to other transformation efforts but not the outcome of digitalization.” says one of the executives. It is certainly true that digitalization is a mutual effort from both sides, the traditional industry and the innovators that enter it. However, when looking at former antiquated industries like logistics, we see that startups have been growing at an incredible pace, at some point bypassing the established companies. Something that could happen to smaller companies in construction as well.

Construction Tech, i.e., applying new digital technologies in three major construction phases: development, planning, and the building, will offer a full array of disruptive solutions to reshape the industry in earnest. Below an excerpt of our deal flow showing startups in the planning and building phase:

The noticeable size of the sector and the huge potential for disruption make Construction Tech an inspiring space to invest in. The development of innovative tools, machinery, modifications, and software will enable advancement and collaboration across the construction sector value chain.

We believe that many startups will manifest themselves in this industry and create a bridge between technical legacies, be it the easier access to materials and equipment, the connection and optimization of construction equipment, the collaborative planning of construction projects, or the seamless communication on-site and between stakeholders.

“Construction stays. But it will be different.”

In summary, our short survey showed that digital construction tech is still in the early days, leaving great room for improvement and new exciting companies. Some sectors, like BIM, are more advanced while others contain enormous transformation potential. As one of the executives noted: “Construction stays. But it will be different”. Different because many construction projects will be facilitated with innovative solutions and conducted with new approaches that have yet to be defined. Startups certainly play a vital role in accompanying and developing the construction industry towards a digital future. They will not solve all of the problems but will build indispensable bridges between technical legacies.

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