How Digital Transformation Is Impacting The Construction Industry

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Posted: Oct 1, 2022

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About the Author:

Matt Rogers is a freelance writer for over 5 years, mostly writing on the topics that concern the relocation, construction, and real estate industries. When not working, he enjoys history novels and collecting souvenirs from over the globe.

Well into the digital age, technological innovations continue to expand many industries’ horizons in new ways. In turn, accelerating digitization gives rise to the broad, oft-misunderstood term of “digital transformation”. However, the construction industry specifically continues to face inherent challenges in this regard, such as fragmentation and decentralization. It thus remains notoriously hesitant to adopt new technologies, from project cost management to construction project planning software – and therefore lags behind by comparison. Still, digital transformation is impacting the construction industry as well, albeit in subtler ways.
What is digital transformation?
First, let us briefly define digital transformation before exploring its applications for the construction industry. This term is indeed very vast, so its intended meanings invariably change across different contexts and industries. SalesForce provides the following concise definition:
“Digital transformation is the process of using digital technologies to create new — or modify existing — business processes, culture, and customer experiences to meet changing business and market requirements. This reimagining of business in the digital age is digital transformation.”
Thus, an initial distinction lies where precisely digital transformation occurs. The process does not simply entail adopting new digital tools for any one phase of production or marketing, but a holistic digitization of processes, communications, and culture. Simple adoption of cloud-based construction management software, for example, is, by all means, a step toward digitization, but does not constitute a transformation in any fundamental sense.
With this rudimentary definition, we now focus on the construction industry specifically. An article by Ayokunle O. Olanipekun and Monty Sutrisna, published in FrontiersIn, pinpoints digital technologies in which the industry sees “an increasing implementationf”:
● Building information modeling (BIM)
● Augmented and virtual reality (AR/VR)
● Laser scanning
● Robotics
● 3D printing
● Prefabrication and DfMa platforms
● Analytics software
● Blockchain
● Digital twins
● Internet of things (IoTs)
● Machine learning solutions
Evidently, digital transformation is impacting the construction industry across all phases – as the term intends. However, this is far from a clean process, as the industry faces distinct challenges that have historically hampered innovation.
Digital transformation challenges the construction industry faces
Longstanding labor shortages aside, which the pandemic has certainly not helped alleviate, the construction industry has traditionally struggled with the adoption of new technologies. E-builder notes this in no uncertain terms, as they correlate it to sluggish productivity growth:
“Construction productivity growth has remained at 1% annually for the past two decades. This correlates to the fact that construction, as an industry, ranks 2nd-to-last for technology adoption.”
This phenomenon would require multiple articles and careful research to fully explore and decipher, but McKinsey offers a solid, if distilled, set of reasons underlying it. Let us summarize each.

1 Fragmentation

The initial and perhaps most overarching challenge in the way of digital adoption comes with the definitional fragmentation of construction projects. Projects that occupy many specialists of multiple disciplines across the value chain, let alone organizations, require immense coordination, which is often unfeasible. Here, McKinsey rightly notes “the short-term and often adversarial nature of construction contracts” as an additional layer of inhibition.

2 Lack of replication

The second issue comes with a definitional lack of replication. Construction planning software may see application across different projects, as may other software across a project’s lifecycle. However, large-scale digital transformations remain hard to execute and encompass multiple projects because construction projects often differ on fundamental levels – often being “one-of-a-kind endeavors.”

3 Transience

Coupled with a lack of replication, construction often entails notable transience. Project teams, organizations across the value chain, and individual contractors and subcontractors are “rarely consistent”. It is exactly because digital transformation lags behind that this transience cannot be alleviated by standardized assets and processes.

4 Decentralization

Echoing this point, McKinsey identifies the fourth and final inhibitor in decentralization. As large construction companies’ “business units and divisions [are] following their own processes rather than standardized ones”, decentralization only exacerbates the industry’s natural unwillingness to adopt new technologies.
How digital transformation is impacting the construction industry
The construction industry has inevitably begun to embrace digitization across the globe. GulfBusiness cites the case of the United Arab Emirates as an example, where government-backed digitization has drawn the attention of digital investment funds. Many of the researchers and publications identify similar slow but steady steps forward across the globe. The reasons for this are numerous and primarily hinge on digital transformation’s current and potential benefits for the industry.

1 Diversification

Deloitte pinpoints a curious initial benefit to construction professionals—diversification. Indeed, portfolio diversification, especially in such trying, competitive times, is a reasonable goal, the motives for which (across all industries) typically “consist of growth, synergies, reduced risk, and cash flow recurrence and stability.”
Examples of portfolio diversification include:
● Storage. Building owners specifically may consider the needs of the relocation industry and opt to retrofit appropriate space into a climate-controlled facility with steady temperature and humidity. The moving team behind Heavenly Moving and Storage argues that a robust digital foundation will, in turn, facilitate better inventory management for improved storage safety.
● Hospitality. Another diversification option into “less related areas”, as Deloitte puts it, may find firms and building owners alike investing in hospitality instead. This endeavor, too, has much to gain from a holistic digital transformation, with facility management as a very notable example.
● Consulting. Finally, experienced construction professionals may instead seek to offer consultation services, as a way to “extract value from technologies and the key business expectations of each client.” In this regard also, standardization through digital transformation may begin to remedy the industry’s challenges.

2 Long-term cost reductions and increased productivity

This second benefit bears scrutiny, as it seeks to strike a very specific balance, namely increased productivity and long-term cost reduction against implementation cost.
Indeed, the McKinsey Global Institute finds that “digital transformation can result in productivity gains of 14 to 15 percent and cost reductions of 4 to 6 percent”. However, they also recognize the aforementioned challenges, and soon present a cautionary note:
“Today, the industry is in deadlock—to break it will require movement from all players. […] But [owners] are generally risk-averse and not sufficiently experienced to navigate an opaque market. Only when there is a sufficiently broad range of contractors and production-system-based players […] may they change their procurement practices.”
Nonetheless, both theirs and other research cited above identify massive potential in long-term cost reductions and productivity. There is certainly consensus as regards a key principle, applying technology as a means of solving a specific problem.
In this regard, ConstructionExec cites individual cases of contractors and companies that have successfully adopted construction management software and other focused solutions. While isolated, these cases are already illustrating how digital transformation is impacting the construction industry, one productivity boost at a time.

3 Worker upskill and competitiveness

The final benefit of digital transformation, especially as labor shortages continue, lies in competitiveness. Reaping digitization’s benefits aside, up-skilling workers allows companies to increase retention rates, a boon when construction turnover rates remain high, as well as retain a competitive edge as digitization expands.
Regarding the former, DCSL identifies the ever-present factor of turnover, noting that “without widespread digital adoption, the construction industry risks being marginalized and may lose a generation of new talent to other sectors”. Fortunately, up-skilling does not simply begin to address this concern but also yields a demonstrable competitive advantage. Notably, the WEC finds that approximately 66% of employers expect positive up-skill and re-skill ROI within a year. Fortunately, PwC reaffirms their expectations, finding that 93% of CEOs who opt for such programs see both productivity and retention benefits.
Conclusion
Digital transformation is impacting the construction industry in three main, distinct ways. First, it offers notable portfolio diversification options for construction professionals and building owners alike. Then, in more direct ways, it promises long-term cost reductions and productivity boosts. Finally, as new software options abound, it incentivizes worker up-skilling toward securing a competitive edge. The industry faces unique challenges that inhibit such overarching transformations, but researchers hope they will diminish in time.

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