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Digital Transformation in Construction: Rebuilding an Outdated Industry

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Article by 
Tefi Alonso
  —  Published 
February 17, 2023
June 7, 2023

It’s no secret that the engineering and construction industry is a major powerhouse of the global economy. Representing 13% of the total global GDP, the construction industry is under constant pressure to innovate, become more efficient, and address cost pressures. The COVID-19 pandemic has created unprecedented challenges and has forced industry leaders to rethink the way they approach technology. 

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Table of Contents

  • Embracing a New Technology-Focus Construction Industry
  • What is Digital Transformation in Construction?
  • Challenges Facing the Construction Industry
  • Benefits of Digital Transformation for the Construction Industry
  • Types of Technology Available to Construction and Building Companies
  • Key Strategies of a Successful Digital Transformation
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Embracing a New Technology-Focused Construction Industry

According to the McKinsey Global Institute, digital innovation and transformation can provide significant improvements in productivity (about 15%) and reduce costs (around 6%). Despite being historically slow at implementing cutting-edge technologies, construction industry leaders are embracing the change. Companies that support the implementation of new technologies will see an increased advantage in the next few decades.

Based on an industry survey conducted by GlobalData, only 34% of construction companies anticipated increasing spending on technology coming out of the COVID-19 pandemic. For companies looking to expand market share, technology can serve as a launching platform to take the lead.

What is Digital Transformation in Construction?

Digital transformation in construction is the integration of digital technology into all areas of a construction company, optimizing operations and value delivery. A required component of a construction digital transformation is also a cultural change, construction companies specifically need to challenge the status quo and differentiate. Identifying and utilizing technology in new or improved use cases provides a major competitive advantage.

Challenges Facing the Construction Industry

The construction industry has changed significantly over the past few decades. Today, construction projects must be run incredibly efficiently, while protecting the safety of their workers, and balancing material and labor shortages. 

  • Aging Workforce - The construction industry is currently facing major labor shortages due to older workers (specifically from the Baby Boomer generation) retiring. In the United States alone, there were about 300,000 construction job vacancies in 2019. This is expected to grow to nearly 750,000 by the year 2026. Many younger workers simply aren’t pursuing these types of trades. Also, older workers are usually not tech-savvy and are likely resistant to new technologies being introduced. Forcing too much change quickly could increase their retirement rates leaving the industry workforce lacking already slim resources. 

  • Analog Processes - Many facets of the construction industry still rely on outdated manual processes for tracking project statuses, ordering materials, completing safety documentation, and doing the actual work. 

  • Pricing Pressures - The construction industry has been on the receiving end of trade wars between nations that force the cost of materials up. For example, in 2018, the United States implemented tariffs on steel (25%) and aluminum (10%). As geopolitical tensions rise across the world, additional tariffs and sanctions could unexpectedly drive up the cost of materials and labor. Inflation in some parts of the world has also been higher than normal. 

  • Supply Chain Issues - Demand for construction materials and services fell sharply during the COVID-19 pandemic. As the global economy recovers, the demand for new construction has started to increase. Many raw material suppliers have been unable to keep up with demand which is causing major disruptions to schedules and increasing material costs. 

  • Green Initiatives - The World Green Building Council estimates that the building and construction industry is responsible for approximately 39% of all carbon emissions in the world. As governments work to reduce their carbon footprints, pressure will be put on the construction industry to provide greener construction methods. 

  • Decreased Construction Activity - Experts don’t expect the construction and building industry to return to 2019 levels until approximately 2023.

Benefits of Digital Transformation for the Construction Industry

The construction industry has been slow to adopt new technologies due to industry norms and worker resistance. However, there are many benefits that come with the digital transformation that construction industry executives need to consider. 

  • Improved Site Safety - The construction and building industry is known for its physically demanding work. Construction companies have long pursued improvements in site safety practices to reduce the number of workplace injuries and fatalities. Technology such as wearable devices and remote monitoring can help improve safety records mitigating the risk of lawsuits or workers' compensation claims. 

  • Client Collaboration - Professionals in the building and construction industry must work closely with their clients to create designs that meet their client’s needs. New technology such as virtual reality and augmented reality can help clients visualize their future space or check in on current progress remotely. 

  • Streamline Inefficient Processes - Many construction techniques and processes are based on tried-and-true methods that have been around for centuries. While some modernization has happened, there is room for improvement. 

  • Attract Younger Workers - As more people pursue higher education, fewer are pursuing career paths into skilled trade jobs. One survey of 35,000 employers across 36 countries found that skilled workers are the hardest positions to fill. Enhancements in technology could make these positions more attractive for younger workers. 

  • Reduced Waste and Cost Reductions - Over the last few years, construction costs have increased more than 20%. This has left construction companies scrambling to control costs and reduce waste wherever possible. Technology can help reduce these costs by providing better planning and tracking insights to project managers. 

Types of Technology Available to Construction and Building Companies

Digital transformation allows for processes to be changed or enhanced through the implementation of new tools, systems, and technology aimed at improving site safety, profitability, and productivity. There are numerous opportunities to implement these advances thoughtfully without disrupting normal operations. 

  • Wearable Technologies - Construction workers can be outfitted with wearable technology that can help monitor site conditions, physical stressors, and site capacity. This type of information is valuable when looking to mitigate safety issues, track worker productivity, and communicate with workers quickly. 

  • Virtual Reality - Virtual reality can help site supervisors tour construction sites from remote locations. It can also be used for client demonstrations and updates. 

  • Drones and Unmanned Aerial Vehicles (UAVs) - Some companies are leveraging drones to survey land, provide aerial photography, and map tough-to-reach topography. This technology can also be used to safely inspect sites for hazards such as structural damage. 

  • 3D Printing - While 3D printing was once a hobbyist technology used to create trinkets around the home, this technology is becoming more common in the construction industry. Today, major construction companies are using 3D printing techniques to construct major building components (and in some cases, entire structures). This technology is efficient and produces little to no waste. 

  • Cloud Computing - Technology such as cloud computing and big data are allowing construction companies to shift away from traditional methods of gathering and sharing data across construction sites. 

Key Strategies of a Successful Digital Transformation

1. Improve Safety Measures

One of the greatest risks to the building and construction industry is workplace safety and worker injuries. The tasks being performed on job sites all across the globe require manual labor often in environments where large machinery is being utilized. In the United States alone, the cost of injuries on construction sites costs over $11 billion each year.

While many developing nations don’t track these statistics as closely as others, the World Congress on Safety and Health at Work estimates that workplace injuries (all industries) cost the global economy over $3 trillion each year. 

One survey in the UK found that 84% of construction managers felt that more needs to be done to improve safety. Companies that are dedicated to making a difference are increasingly turning to technology to help measure and collect data that can be used to improve construction safety. 

  • Sensor Networks - Both workers and construction sites can be equipped with sensor networks designed to quickly detect unsafe conditions and alert workers. For example, carbon monoxide causes more deaths on construction sites than any other chemical or compound. Since this gas is hard to detect, wearable oximeters attached to construction workers’ hard hats can monitor their blood oxygen levels that drop as a result of carbon monoxide poisoning. 

  • VR Safety Training - Any opportunity to remove humans from construction sites reduces the chances of injuries and fatalities. Virtual reality can support this by allowing construction employees to “visit” sites without being there physically. Some companies are even turning to VR to provide safety training (such as learning to drive a large piece of machinery) in a controlled environment. 

  • Big Data Collection - The more data that is available, the better decisions companies can make from a safety standpoint. Unfortunately, many companies still rely on manual safety paperwork for tailboard meetings, contractor safety reviews, and inspections. By digitizing these tools, workers in the field can serve as a source of massive amounts of data that can feed into analytic tools to help with real-time decision-making. 

  • Drones - Drones can be used to quickly and safely monitor work sites for potential hazards (such as an unstable building roof). As artificial intelligence (AI) improves, drones may be able to collect data that AI can transform into useful information or make safety recommendations to construction managers. 

Key Takeaway - Technology can create significant improvements in safety process across the industry through automation, data trending, and monitoring tools. Companies that focus on technology to solve safety challenges will see reduced injury rates and lower costs from compensation claims. 

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2. Address Workforce Issues

It’s no secret that the construction workforce is aging. According to the U.S. News & World Report, fewer than 10 percent of construction workers are under the age of 25 with a median age of 42 years old. This brings many challenges to construction companies as talent becomes more difficult to secure.

Technology may play a significant role in the ability to recruit and retain younger workers. Many younger workers grew up with technology in their hands (such as cell phones, touch screens, and tablets). For many, construction work feels archaic and doesn't match their skills or career interests. 

Many younger people are excited to work in fields that offer access to cutting-edge technology. By embracing technology, construction companies can attract workers by offering positions that allow them to work in 3D modeling, virtual reality, networks, artificial intelligence, automation, and data analytics. 

One major hurdle that companies will need to overcome is the transition. With a quarter of the construction workforce over the age of 55, many workers aren’t interested in embracing new technology. Many older workers simply want to maintain the status quo as they inch toward retirement. Pressuring older workers to adopt technology could push them into retirement sooner making the skills gap worse. 

Another challenge is low productivity and inefficiencies as a result of poor design processes, insufficient investment in skill development, and innovation. This impacts all workers within the E&C industry from tradesmen to project managers to middle management.

As workers retire, they are replaced with less-experienced workers. In some places, like the United States, many young workers are pushed toward pursuing a 4-year college degree instead of trade education. In addition, this has been exacerbated by global recessions, weakened unions, and political agendas. 

Key Takeaway - Major gaps in the skilled labor market are creating talent shortages across the construction industry due to an aging workforce and low participation rates by younger workers. Companies can use technology to attract younger, tech-savvy workers by providing technology-focused work and tools. 

3. Sustainable and Eco-Friendly Technologies

Climate change, government regulations, and eco-conscious consumers are putting pressure on the construction industry to reduce its environmental impacts. Most experts agree that buildings and infrastructure produce a large portion of the world's carbon emissions and use about a third of all energy. For this reason, the Paris Agreement dictates that the energy consumption per square meter of buildings should be decreased by 30% by 2030.

Many companies have embraced this new expectation. One study found that 74% of architecture, engineering, and construction companies are investing in technology to improve sustainability. However, there is a balance to be struck between pressures to reduce construction costs and the costs of pursuing green technologies and materials. 

Construction companies have many options when it comes to implementing technology that is environmentally friendly. Things such as 3D printing and modular building processes can improve efficiency which also reduces the use of materials and energy. However, the most critical element is education within the existing workforce on what technologies exist and how they can be utilized to work toward sustainability goals.

These technologies include tools to reduce water and energy waste, preserve natural resources, and improve air and water quality. If done correctly, companies can reduce costs and increase value while protecting sensitive ecosystems and limited natural resources. 

Key Takeaway - The demand for eco-friendly building materials and processes will continue to increase as government regulations and market pressures work to reduce carbon emissions globally. Construction companies can leverage new technologies to reduce energy consumption and material waste. 

Case Study: 3D Printing a Park

3D printing technology first emerged in the 1980s and was used to construct small objects out of a liquid resin material. The building industry eventually realized that you could 3D print with materials such as concrete. In 2014, the first full-scale house was produced in Amsterdam using 3D-printed concrete. Since then, numerous companies have embraced this trend which yields significant cost savings (between 20 to 40 percent). 

One of the most impressive 3D printed construction projects is located in Shenzhen, China. In 2021, a professor from Tsinghua University in collaboration with Advanced Intelligent Construction Technology (or AICT) transformed a 5,500 square foot park with over 2,000 3D printed elements such as sculptures, benches, retaining walls, and intricate architectural designs. In addition to costing significantly less than using traditional building methods, the park was completed in just 2 ½ months. 

Most industry experts believe that 3D printing in the construction industry is only in the early stages. Some projections indicate that the market for 3D printing in construction will double year over year until at least 2030. 

4. Cost Reductions and Supply Chain Challenges

The global supply chain has faced major disruptions due to the COVID-19 pandemic. Many suppliers slowed production as demand decreased, laying off workers and halting operations to harvest raw materials. Many companies failed to identify that the pandemic would stretch across multiple years.

Some industry experts expected production and demand to stabilize by 2021. This unfortunately didn’t occur further increasing shortages in materials like wood, cement, paint and coatings, and metals. 

As the pandemic has subsided, suppliers are struggling to ramp up production to keep up with rising demand. According to the Associated General Contractors of America (AGC), 75% of engineering and construction firms have experienced project delays due to material shortages. Extended lead times and delivery delays have impacted approximately 57% of these companies as well. For many companies, materials got stuck in transit with no reliable delivery date. This makes it incredibly difficult to properly schedule projects. 

These delays and shortages, as well as high inflation, have contributed significantly to sharply rising costs. The first half of 2021 experienced double-digit price increases month over month. Companies that can figure out ways to streamline their supply chains will have lesser impacts. Technology can be a great solution to solve many cost-related issues. 

Key Takeaway - Supply chain pressures as a result of the COVID-19 pandemic have significantly impacted the cost of construction projects globally. Construction leaders should look to technology to streamline the tracking and ordering of materials and supplies to keep costs down.

Case Study: Virtual Inspection Program

It’s critical for contractors to closely follow building codes put in place by the local government to ensure that buildings are safe. For this reason, most jurisdictions around the world require inspections at certain points throughout the project to ensure that there are no hazards or shortcuts being taken. Unfortunately, most inspections require an in-person visit by the city building department. These inspections must be scheduled in advance and can cause delays to the project. 

Miami County in the United States was struggling to schedule inspectors to cover a territory of over 2,200 square miles. In 2019, they introduced a Virtual Inspection Program that would allow certain building elements such as concrete slabs, insulation, and ceilings to be inspected over a video call. This program has greatly improved the number of inspections that can be completed in a day and has reduced the cost of travel between sites. The county estimated that 75 percent of all inspections requested can now be done virtually. 

If expanded, innovations like these can have significant financial impacts on the nearly $13 billion global building inspection services market. 

5. Transforming Analog Processes

Construction is one of the oldest industries in the world dating back thousands of years. Unfortunately, many of the processes that are still utilized today rely on manual efforts of completing work, tracking project progress, and collecting data. One study by TrackVia found that over half of all construction executives believe that manual processes make it difficult to run job sites efficiently or provide access to real-time data to make good decisions. 

There are a few areas of focus to consider when implementing technology to reduce the need for analog processes and systems. First, companies need to look at ways to better collect data. This can be done automatically in some cases through sensors or other non-human tracking mechanisms. In many cases though, construction companies will need to rely on workers to provide data timely. The second piece is how the data that is collected will be used and displayed for company leadership and on-site management. 

Key Takeaway - The construction industry still struggles with low technology adoption. Many processes and tools are still analog. Companies should focus on digitizing tools and simplifying information that is spread across multiple, fragmented systems. 

Risks of Not Implementing Digital Transformation

Companies in the E&C industry need to move quickly if they want to remain competitive in the near future. There is an extremely high risk for companies that fail to see the value and importance that technology will bring to the industry. 

  • Higher Construction Costs - Companies that don’t leverage technology will struggle with inefficient processes, higher costs due to waste, and slower supply chains.

  • Poor Quality Talent - Few young employees will be attracted to companies that are technology deficient. In an industry that already struggles to attract talent, low-tech E&C companies will not be a desirable option for employment compared to other forward-thinking companies. 

  • Customer Confidence - Supply chain, scheduling issues, and project delays will continue to frustrate customers. In addition, firms that can showcase their technology platforms will attract higher-quality projects and clients. 

  • Environmental Compliance - Technology will play a pivotal role in making construction more environmentally friendly. As regulations and market expectations become more stringent, technology-based construction companies will have an easier time adapting to maintain compliance. 

Emerging from the pandemic, the construction industry has reached all-time highs (generating $1.57 trillion in July 2021). This growth is expected to continue. For this reason, it’s important for construction companies to develop and implement a carefully thought-out digital strategy.

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