Tony Wells is the CEO of Merit
Declining productivity in the construction industry means projects are becoming expensive and unaffordable. Productivity for construction, specialist facilities and, in particular, architecture and engineering (AE) firms is significantly below the UK average.
Industry fragmentation is the fundamental problem preventing the implementation of disruptive innovation at the system level. As Levitt (2007) quoted: “Fragmentation presents a ‘endless stream of problems that require incremental local innovations.”
“The hyper-fragmentation of design and delivery…has created an industry unable to evolve”
The scale of fragmentation in construction in the UK is truly staggering, with 914,475 businesses of which 99.8% have fewer than 50 employees. This concentrates power to a few large companies that are invested in suppressing change and disruption.
Manufacturing learning
Manufacturing achieved productivity growth by embracing industrial revolutions in mass manufacturing, factory automation and digitization, which construction largely ignored, and now the industry must catch up with 120 years in a single step to deliver productivity, profitability and salary growth.
Historically, as building complexity increased, builders chose to outsource specialized systems. This process of fragmentation continued to include even the works originally self-performed by the builders. The hyper-fragmentation of design and delivery created short-term cost benefits, but has created an industry unable to evolve and implement systemic innovation.
Fragmentation results in “deferred engineering,” where design firms produce high-level concepts that the supply chain interprets and develops into something we hope will work at the lowest price. In academia, this is known as a “mirror trap” and blocks the diffusion of innovation.
Collaboration is advocated as the solution. However, fragmentation and deferred engineering make this impractical, and academia and government end up engaging “top-down” with the same few large operators promoting existing business models.
Sir John Egan also advocated collaboration, but unlike manufacturing where we see Keiretsu relationships improve productivity, research from the University of Salford showed that fragmented construction demonstrated a decline in productivity after of Egan, as the levels had less competition.
The well-regarded McKinsey report The next normal in construction, establishes a transformative vision of the future. Vertical and horizontal consolidation of the value chain, investment in factories and digital technology and the development of a product-based approach is key. McKinsey predicts a possible value shift of 45% of levels, specialists, design and logistics to off-site manufacturing.
This would be transformative, to develop solutions based on factory-made products with automated, minimized on-site assembly enabled by the digital transformation of Industry 4.0.
But the shift to factory-based design for manufacture and assembly (DfMA) is poorly understood in construction: it requires 10 times the design content compared to the traditional prototype design approach.
A repeatable platform design solution linked to a manufacturer’s production system is required, guiding DfMA’s choices through a set of rules to configure customizable building products.
Today, AE design firms provide abstract-level detailing, relying on contractors and craftsmen to “work things out in the field” – a very different process from manufacturing, where every component is pre-specified, tested and modeled in 3D like a real digital twin. since a robot on an assembly line cannot “figure out the details” on its own.
A product-based approach enables development and upgrades that include clear building safety benefits, as successfully implemented in aircraft design, and the development of innovative net-zero solutions.
A successful platform design must allow architectural freedom to provide site and/or project variability, but with highly pre-configured “build-to-order” (CtO) factory-built modules that can achieve a wide market reach. This would be a new concept in construction that goes far beyond prefab MMC, site-assembled kit of parts and traditional modular.
Platform designs are usually modular or integrated. In The innovator’s solution, Professor Clayton Christensen’s work showed that when new product development and the implementation of disruptive innovations are required, integrated platforms become the dominant business model if one company controls all interfaces.
As modular platforms favor the incumbents, according to Christensen, it is not surprising to see that MMC and parts kit platforms are currently being advocated, but the reality is that the integrator strategy is traditional piecemeal delivery with a brand new, and there is little hard evidence. this kit of parts has provided a tangible improvement in productivity.
Katerra’s parts kit attempt in the United States ended in a $2 billion bankruptcy, and reports of the P-DfMA flagship project of “The Forge,” which is widely referenced in the platform’s rulebook products as an exemplary case study, does not suggest any cost or time improvement.
The right strategy is to seed the industrialization of the construction industry through government projects, but the most likely route for the implementation of new products and disruptive manufacturing technologies is, as Christensen suggests, new market entrants with platform products integrated highly digitized.
