McKinsey research previously identified three technology-focused E&C use case clusters that lacked integrated solutions: on-site execution (“field”), digital collaboration (“team”) and back-office and adjacencies (“office”). By expanding their research to include the entire asset life cycle – including concept and feasibility, design and engineering, preconstruction, construction, and operations and maintenance, they accessed 2,400 technology solutions companies. This created the most comprehensive database of the construction ecosystem around the world.
Three key topics will be explored:
- What are the newest trends emerging form this year’s research?
- How will the market evolve in the future?
- How can the industry move faster towards a digital future?
Three key trends are shown to be shaping the industry, including new sets of solutions around established use cases, increasing technology investment, and a widening set of promising use cases.
New sets of solutions around established use cases
McKinsey’s research observed which solutions were clustered together around specific established use cases. The most prominent of these groupings included 3-D printing, modularization, and robotics; digital twin technology; artificial intelligence (AI) and analytics; and supply chain optimization and marketplaces.
Each of these constellations saw impacts made within use cases in the areas of “field”, “team”, and “office”. The digital twin technology constellation saw drone-enabled yard inspection, along with digital collaboration use cases including laser scanning and virtual learning.
3-D printing, modularization and robotics; twin models; and artificial intelligence and analytics were identified as being transformational for the entire industry. The fourth constellation, supply chain optimization and marketplaces, saw a quick rise with many smaller players entering the market just over the past year.
Artificial intelligence and analytics
There are boundless long-term potential use cases for AI and analytics within E&C. A promising technology for a use case applicable to the entire lifecycle is machine learning, particularly in reality capture and comparison of in situ field conditions with plans. There is potential for schedules to be optimized by machine learning being deployed on various projects, with tasks sequenced and deadlines being more richly informed. Divergences from blueprints could be spotted closer to real time and corrected with input from a variety of potential predetermined scenarios.
AI’s proliferation in the E&C sector is expected to be modest, as few leaders have the processes, resources, and existing data strategies to power the algorithms and effectively implement the technology. Yet the potential is so large that it cannot be ignored. A narrow set of start-ups is gaining traction using AI-focused approaches, representing threats to more traditional players.
3-D printing, modularization, and robotics
Standardization and benefits of scale are reaching the construction industry with mass production and pre-fabricated components that are produced off-site. Consistent use of such technology, where economically feasible, could boost productivity by five- to tenfold. A system would include applications such as fully automated prefabrication processes able to turn a 2-D drawing or 3-D model into a prefabricated building component; self-driving heavy machinery; construction robotics such as bricklaying robots; exoskeletons to improve worker mobility and prevent injury; and metal 3-D printing of long-lead components such as joints. All of these measures can help to improve cost-effectiveness, timeliness, increase safety and reduce risk.
Within robotics, the industry is still in the early stages of embracing hardware innovations that provide field augmentation with exoskeletons and drone-enabled yard inspection. Given labor shortages in many geographies, these will be particularly important. Pairing humans with robots can increase efficiency greatly.
Digital twin technology
Productivity gains are the result of transparency and proactive problem resolution in the E&C world. Reality-capture solutions and digital twin platforms allow stakeholders to gain a dynamic view of the project and make real-time comparisons with their original plans. Being able to adapt plans to your progressing work will reduce time traditionally lost in these stages. Drones and satellite imagery are key components of reality-capture efforts.
A glimpse of what is possible can be found in the integration of 3-D models generated by drone imagery, combined with live key performance indicators monitored using Internet of Things sensors. By creating an exact digital replica of the project’s physical real-time presence, you can rapidly advance data accuracy and create automated, real-time progress updates. This also enables users anywhere in the world to virtually interact with the digital and as-built models, greatly decreasing the amount of time required for decision-making.
Supply chain optimization and marketplaces
Procuring materials, equipment and labor is currently a cumbersome and largely manual process. Start-ups are beginning to offer marketplace platforms for the buying and selling of goods, along with hiring, and they are gaining traction in certain regions. Large suppliers, who quickly deployed the platforms at a greater scale, have even bought out a few of these start-ups. Helping market participants match supply with demand presents huge potential to optimize the supply chain. Competitive bidding also stands to be enhanced through the introduction of transparency on costs and the availability of labor, materials, and equipment for current and future projects. Much of this progress is unfortunately currently limited to North America.
Future evolution of technology investments in the E&C market
The mapping of investment flows yielded two critical insights to McKinsey’s researches:
Investment doubled over the past decade
Between 2008 and 2012, a cumulative $9 billion was invested in construction technology. Looking at the years between 2013 and February 2018, that number doubled to $18 billion, driven largely by mergers and acquisitions.
Early technologies deliver on their promise
By the count of transactions, early-stage venture capital (VC) for the industry is on the rise. From 2013 through to February 2018, three in four of the 908 transactions were early-stage VC. The construction technology space has managed to sustain a relatively high level of VC investment since the peak of 2015, suggesting that more solutions are ready to scale.
Late-stage VC has been trending upward in the market, with steady increases since 2010. The steady rise provides a suggestion that particular use cases are market-backed and ready for growth funding.
Continued growth in use cases
Two areas of the asset life cycle were found to contain the most growth with regards to technology: construction and commissioning, and operations and maintenance. Other phases are already established, for example back-office, while others are small or still maturing.
Highest invested phase of the asset life cycle is construction
The ecosystem is lead by construction, which garners the most overall capital, the highest number of use cases, and the highest number of transactions. This phase is also relatively mature, with only one-third of the present companies being newcomers. McKinsey expects to see M&A investments related to consolidation, along with incremental late-stage VC investments in this space.
Large investments are being directed towards preconstruction and construction back-office phases
Labor and equipment marketplaces are the main attractors for investment in the preconstruction phase, providing a relatively fragmented solution space where consolidation awaits the regionally focused players. On the other hand, construction back-office is a more mature solution space. It is primarily mature companies, through private equity or M&A transactions with high average values, which therefore drive investment.
Untapped markets still remain: design/engineering and concept/feasibility
Entrepreneurs may have initially focused their attentions on life cycle stages that hold greater project value. Less disruption is predicted in these stages, with a focus instead on continuous improvement.
Future evolution of the market
McKinsey mapped the current construction market by looking at the number of transactions in each of the 38 use cases, compared with the number of new companies in the past five years in that space. Four themes emerged:
- Talent acquisition – with a high number of new companies and a high number of transactions in a set of use cases such as machine learning, it is clear that companies are using acquisitions to onboard new talent and skills.
- Emerging – some use cases are seeing a lot of new companies but not many transactions, suggesting an emergence into the tech investment space over the next few years.
- Maturing – use cases such as document management are seeing many transactions with few newer companies, suggesting the dominance of relatively established players operating in a fragmented market. Further consolidation may occur in the future.
- Established/unproven – these use cases, including enterprise resource planning, include few new companies and few transactions. This may suggest saturated markets, or those that have not yet realized momentum.
Continued fragmentation and increasing consolidation
The fact that technology offerings are fragmented will continue to be an issue. Last year’s McKinsey analysis saw just 13% of companies engage in a technology solution that addressed more than one of the three identified clusters (on-site execution, digital collaboration, and back-office and adjacencies), means that companies are deploying narrow solutions rather than looking at a wider, more integrated picture.
More than half of companies are engaging in a solution that addresses just 1 or 2 use cases out of the 38 that McKinsey identified.
For those that want to engage in technology solutions, this is a big challenge. Older companies with legacy systems view new technology as yet another layer that needs to be integrated on the existing processes. In reality, newer technology can be used to cut down on what is currently done today, with a focus required on re-imagining the delivery of value in the E&C sector.
A difficulty in sourcing talent
Digital talent sourcing is a concern for executives in any industry, yet it remains critical to digitization. This will require looking out for entrepreneurship skills, industry knowledge, and the business acumen to build a business unit from the ground up.
Moving faster towards a digital future
Modern technology is finally starting to play a major role in the E&C sector, however there is still a lot of room for growth. McKinsey has identified specific points of actions for different players, and following these can help to accelerate the adoption of construction technology in the near future.
Invest in talent and skill building
Leaders must expand the skill sets of current employees and ensure the hiring of new candidates that have technical expertise. AEC firms can look to digital native companies for a source of talent, particularly for those in other industries that have undergone significant digital transformation. Paired with the right leaders and organizational reach, they will be able to blend new and existing expertise. Training programs should be provided for existing employees to familiarize them with new technologies.
Engagement with the start-up ecosystem
The options here are wide-ranging, from involvement in accelerators or incubators to direct investments in start-ups through a corporate VC arm. Some entrepreneurs may be hesitant to accept capital from larger firms, as it may impede their ability to serve other firms in the market. Less risky forms of engagement can be used to mitigate these risks, for example by partnering to develop a solution.
Clarify success criteria for piloting and scaling
In order to feasibly be an early adopter, funding can be set aside to test promising technology in an experimental fashion. AEC firms should develop a framework to assess pilot solutions, aiming to understand the longer-term use of the technology and whether its cost can be accommodated into project budgets. Partnering with start-ups can provide outside expertise that may be less costly than building an in-house development team.
Listen to the end user and keep iterating
Instead of trying to be innovative for the sake of it, try and listen to the real needs of the industry. Start-ups should listen closely to the needs of AEC firms and adapt their product offerings accordingly. With a heavily fragmented landscape, it’s imperative to confirm the nice-to-have’s against the real needs.
Plan ahead for integration and consolidation
Real value from the technology ecosystem will come when multiple use cases and clusters are integrated. Start-ups must focus on how they can lock horns to deliver value with their competitors – simultaneously collaborating and competing.
Drive forward a strong and sharable data foundation
It’s crucial to have a shared data backbone that all project participants work with. Agreements and workflows need to be in place.
Pick out and focus on your critical use cases
It’s important to understand your unique organization’s business case for technology. It won’t always be the most cutting-edge tool or application that delivers the biggest benefit. The identification and prioritization of use cases that deliver long-term impacts will be vital for future success. Short- and medium-term projects can also be deployed in order to generate momentum. Once a concrete, customized understanding of the return of investment, risks and disruptions are formulated, the technology adoption will be set for optimization and sequencing.
The overall winners will be the ones that are able to adapt to the changing technological landscape – sooner rather than later.