Disruption is coming – let’s rise to the challenge it brings

I am often asked whether established construction firms face the threat of disruptive innovation - and whether new entrants to the construction market will swoop in and hoover up the profit?

Until recently, complexity and disorder in the construction system formed a significant barrier. In 2018, however, the sector deal for construction set out to sweep away that disorder, paving the way for efficiency and elimination of waste.

Now, three years down the line, the industry is starting to look very different. The disruptors are honing their business plans, and the last chance to “modernise or die”, as Mark Farmer has put it, has finally arrived.

The fact is that more than 50 per cent of construction activity can be described as process waste

The inspiration behind the sector deal was the opportunity and the need for change in our industry. The fact is that more than 50 per cent of construction activity can be described as process waste.

For every £1 million spent on building, 100 cubic metres of waste is hauled away in skips, and buildings use a totally unsustainable amount of energy. Similarly, labour productivity can be doubled just by applying known techniques.

If there was a single magic bullet, or simple model, to eliminate waste in all its forms from construction, it would have been tackled years ago. Instead, a mosaic of models is needed to enable change.

The mosaic is made up of value-based procurement, Lego-like interface standards between physical components (the platform construction system), standards for the exploitation of green energy generation in buildings, rules for the a “golden thread” of digital information, and finally a document that allows clients to mandate all this best practice from their supply chains.

All these models are now already or imminently in place, funded by the sector deal via the Transforming Construction challenge. The value toolkit for procurement is being tested by 150 organisations; the platform rulebook is nearing completion; the Active Building Centre is producing the active building framework to optimise the capture, storage and distribution of green energy; The information management framework defines the golden thread requirements for data provision; and the Cabinet Office has  published the Construction Playbook covering all government procurement.

I predict that the beneficiaries of this bonanza will be a combination of large organisations moving in from other sectors, new SMEs and those construction incumbents prepared to be bold in embracing the new techniques

The implications of this more ordered system are profound. Perhaps as much as 50 per cent of the cost of producing high-performing built assets can be eliminated - that’s 50 per cent of a current £100bn UK construction market, and 50 per cent of a global £7trn market.

Clients, suppliers and society at large can all reap a share of this saving, and the planet can start to recover as we shift from fossil fuels to active building technology. The current market capitalisation of the top 10 global construction companies is a puny £125bn (much of which is not even due to construction activities). For comparison, Tesla has a market cap of £415bn. A share value bonanza is surely due.

I predict that the beneficiaries of this bonanza will be a combination of large organisations moving in from other sectors, new SMEs and those construction incumbents prepared to be bold in embracing the new techniques. The UK is well set for rapid progress in both its internal and export markets, and the government is committed to driving change through public sector procurement of buildings worth tens of billions of pounds a year.

The country is already established as the global leader in digital construction, our productivity on site is at the top of the international league, and we have among the best skills base at all levels of expertise.

In terms of investment, the default focus tends to be on factories and plant. These remain core to the industry but, perhaps more importantly, investors need to look at collection, processing and learning from data.

To construct efficiently, we need to know what the customer wants, site data, where every component is tracked through the production process, what certification has been achieved, and how a completed building is operating. These things require sensors, software, models and skills. Data will also in turn support the optimisation of existing off-site fabrication capability and the business cases to invest in more.

Those that take a wait-and-see approach are likely to find that they have waited too long

My hope is that many of UK construction’s existing organisations grasp this opportunity - but a new mind-set will be required. Decades of low profit margins and a habit of retaining cash have made contractors reluctant to invest, so those that take a wait-and-see approach are likely to find that they have waited too long.

While the majority of responsibility now lies with the private sector, there is still an ongoing role for government. The investment in Transforming Construction has taken us a long way to realising the possible benefits, and follow-on funding to promote scaling will now help secure rewards for UK business and society.

Aligned with that will be the setting of ambitious sustainability requirements. As Lord Deben recently said, “failing to get to net zero is not an option. The only question is whether the UK goes about it in a business-like way and benefits, or delays action and suffers the pain of a last-minute scramble”.

The opportunity is ours for the taking.

Sam Stacey is challenge director, Transforming Construction, UKRI