Top 4 Challenges Facing The Construction Industry

Robert Leeds

Population growth statistics paint a rosy future for the construction industry. With the global population predicted to hit 9 billion by 2050 – and two out of every three people living in cities by 2050 – the demand for construction has never been greater. Worldwide, construction is already one of the largest industry sectors, accounting for more than 11 percent of global GDP and expected to grow to 13.2 percent by 2020, according to a 2014 PwC report.

But focusing on this strong demand obscures a more precarious reality. Underlying challenges in productivity, profitability, performance, labor, and sustainability could derail the industry’s growth.

Today, the construction industry is at a crossroads. Companies that address these challenges head-on and re-imagine their business processes will be poised for significant growth. Businesses that fail to take the challenges seriously, however, will face an uphill battle for viability.

Challenge #1: Poor productivity and profitability

Currently, the barriers to entry in construction are low, creating a saturated marketplace with heavy competition. This competition is shrinking profit margins and constraining essential reinvestment in new technology and better business practices. Stagnant construction labor productivity is compounding this problem. While other industrial businesses have benefited from a 100 percent increase in labor productivity, productivity within the construction industry has remained stagnant over the last 50 years.

Why is productivity stagnation? According to a Construction Owners Association of America (COAA) study, 63 percent of direct labor time on mega-construction projects is spent waiting for materials and equipment, traveling to the area, taking early breaks, and planning how to do the work. This lack of productivity is reflected in the bottom line, where typical margins for construction companies range between 2 and 8 percent. Consequently, construction companies find themselves trapped between shrinking profit margins and stagnant productivity, unable to generate the profit necessary to invest in critical technology.

Challenge #2: Project performance

The opportunities in construction are growing, but so is project complexity. With companies already operating under razor-thin profit margins, a single production surprise can wipe out profits for the whole company. Design complexity compounds this problem. As designs become larger and require greater efficiency, construction companies struggle to keep up.

The lack of on-time and on-budget projects is telling. According to an Accenture study, only 30 percent of large projects in the energy industry are delivered on budget, and only 15 percent of projects are completed on time. Worse, the 2015 KPMG Global Construction Survey found that more than half of all construction companies experienced one or more underperforming projects in the previous year.

Challenge #3: Skilled labor shortages

The construction industry is bracing for a dramatic reduction in workforce. The Associated General Contractors of America (AGC) found that 74 percent of the total respondents believe there is a crunch in skill trades, and 53 percent said they were unable to hire construction professionals such as supervisors, estimators, and engineers.

Prior to the recent recession, the U.S. construction market consisted of two generations: the traditionalists and baby boomers. Now, the workforce has split into four generations: traditionalists, baby boomers, Generation X, and millennials. This present labor diversification is a challenge because of stark differences in work ethic, attitude, outlook, and behavior between the generations, reports PwC. Traditionalists have nearly all left the workforce and baby boomer retirement is in full swing. Furthermore, the recession drove many skilled craftsmen to leave the industry and never return. By 2020, millennials are expected to represent half of the global workforce– many with little to no experience or interest in the construction industry.

The combination of increasing project complexity and decreasing experience is a risk multiplier, increasing the risk of deliverable delays, quality construction problems, and employee safety concerns.

Challenge #4: Sustainability concerns

The construction industry is the top global consumer of raw materials. The industry generates between 25 to 40 percent of the world’s carbon emissions. This volume of natural resource utilization is not sustainable and could compromise the environment for the sake of growth. Climate change and water management are two environmental issues that pose a growing challenge to the construction industry. Achieving targets for global carbon dioxide emissions reduction will be a major challenge for the construction energy in rapidly developing countries like India and China. Smart planning and sustainable design could reduce energy consumption and pollution, but require a new approach to project management– an approach that the construction industry on a whole is not yet prepared to undertake.

Next steps: Embracing disruption and preparing for the digital future

The construction industry is at an inflection point, analogous to the move from landline telephony to cellular technology. Digital technologies are disrupting the industry, providing new opportunities to address the challenges of poor profitability/productivity, project performance, skilled labor shortages, and sustainability concerns. Digitization of the construction industry is not a question of if or when—the changes are happening now.

The industrialization of construction and the application of proven manufacturing technology and best practices will help companies drive reliable outcomes and improve margins. Digitization will increase productivity, eliminate waste, and mitigate the adverse impact of on-site surprises.

Digitization will change most everything, including the competitors and the barriers to entry. The end result: a more productive and profitable industry that builds more sustainable assets. Construction companies must take steps now to join the digital future and stay ahead of the competition—or risk being left behind.

To learn more about how to tackle these challenges, read Building a Sustainable World, How to survive and thrive in a digital construction economy.

 

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About Robert Leeds

Robert Leeds has been with SAP for four years and has over 16 years of business development and marketing experience with enterprise software across a variety of industries and lines of business. Prior to SAP, he held a variety of positions across small software start-ups, acquisition agglomerations, and large tier 1 technology companies. Robert’s goal is to help customers understand the value of SAP’s solutions in the terms of their industry.

Digitization Is Crucial To Achieve UN Global Goals

Daniel Schmid

Concern, hope, enthusiasm: This was the mixture of sentiments that I perceived during the World Economic Forum (WEF) Sustainable Development Impact Summit in New York City last month.

More than 700 leaders from more than 70 countries took part—including government, business, international organizations, research centers, and not-for profits. Panelists included Salesforce CEO Marc R. Benioff, Mars president Jean-Christophe Flatin, Roche vice-chairman André S. Hoffmann, and Royal Philips president and CEO Frans van Houten.

Concern

Former U.S. Vice President and Nobel Peace Prize winner* Al Gore pointed out, in a panel discussion titled “Global Progress through Partnerships,” that the past two weeks saw two record-breaking climate-connected storms. Hurricane Harvey crossed the Gulf of Mexico, which was over four degrees warmer than normal, resulting in enormous amounts of rain. The rainfall totals in Houston were a once-every-25,000-years event. The monsoon in South Asia also brought 70 cm more rain than normal, with one-third of Bangladesh underwater.

Gore said, “We are departing the familiar bounds of history as we have known it since civilization began.” In contrast, other areas are experiencing devastating droughts: 80 percent of Portugal is in drought, and 70 large fires have burned in the western part of North America.

These conditions also create climate refugees. “Long before the civil war in Syria started, the worst drought in 900 years of record-keeping destroyed 60 percent of farms. One and a half million climate refugees entered the cities,” Gore pointed out, adding that this is a contributing factor to the war in Syria.

Hope

“But,” Gore added, “we are also meeting in a time of extraordinary and unprecedented hope.” The World Economic Forum was incremental in building the success of the Paris Agreement, and will continue to play a key role in implementing it. “Public private partnerships are the keys to putting in place the solutions we need.”

The day after the U.S. government announced it would leave the Paris Agreement, Gore said, political and business leaders, states, cities, etc., doubled down on their commitment, saying “We are still there!” SAP is one of the companies that is strongly committed to climate action: We plan to be carbon-neutral by 2025.

According to Gore, there are additional reasons for hope: Technology becomes better and cheaper all the time, a phenomenon known as the “cost-down curve.” Gadgets can now be run with wind or solar energy, and efficiency is better than ever. “The Fourth Industrial Revolution is also a sustainability revolution,” Gore said. Technology is key to meeting the sustainable development goals.

This was also consensus in the panel discussion “The Fourth Industrial Revolution: Technology-Driven, Human-Centred”: Panelists emphasized the opportunities technology brings, from artificial intelligence (AI) to improve working conditions to mobile phones in India that enable everyone to play a part in the economy (e.g. have a bank account)—even those who were formerly excluded. For girls in Africa, learning IT and coding skills bring hope for a better life.

My take? It is up to us to ensure that the opportunities technology offers outweigh the risks. To help drive awareness around the sustainable development goals (SDGs) and showcase examples of how IT can help contribute to them, SAP has published an interactive web book and iPad app as well as a free online course on openSAP: “Sustainability through Digital Transformation.”

Enthusiasm

The theme of most of the speeches and discussions I witnessed at the summit was “There is no planet B,” but also “Together we can make it,” meaning that government, public, and private-sector organizations need to cooperate to tackle the UN Sustainable Development Goals (SDGs). With partnerships and cooperation, they have the power to create positive economic, social, and environmental value through technology, solutions, and skills.

World Economic Forum founder and executive chairman Klaus Schwab described the summit’s intention: “What is needed is a true agenda for global public-private cooperation, with the objective not to defend individual interests, but to keep the destiny of humankind as a whole in mind.”

As a result of the summit, several major new initiatives that will advance public-private cooperation on the global goals were announced or launched, including:

These initiatives show the will to cooperate and the readiness to act of leaders from all over the world—let us all have a part in tackling the biggest challenges of the planet!

*The Nobel Peace Prize for 2007 was awarded to the Intergovernmental Panel on Climate Change (IPCC) and former US Vice President Al Gore for their efforts to obtain and disseminate information about the climate challenge. In Gore’s case, the award was grounded in his tireless campaign to put the climate crisis on the political agenda.

This story originally appeared on the SAP Community.

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Daniel Schmid

About Daniel Schmid

Daniel Schmid was appointed Chief Sustainability Officer at SAP in 2014. Since 2008 he has been engaged in transforming SAP into a role model of a sustainable organization, establishing mid and long term sustainability targets. Linking non-financial and financial performance are key achievements of Daniel and his team.

Digitalist Flash Briefing: What Powers The World’s First Green Cargo System In Switzerland? The IoT

Bonnie D. Graham

Today’s briefing takes us to Switzerland where plans are underway for a greener, more efficient future – powered by the Internet of Things.

  • Amazon Echo or Dot: Enable the “Digitalist” flash briefing skill, and ask Alexa to “play my flash briefings” on every business day.
  • Alexa on a mobile device:
    • Download the Amazon Alexa app: Select Skills, and search “Digitalist”. Then, select Digitalist, and click on the Enable button.
    • Download the Amazon app: Click on the microphone icon and say “Play my flash briefing.”

Find and listen to previous Flash Briefings on Digitalistmag.com.

Read more on today’s topic

 

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About Bonnie D. Graham

Bonnie D. Graham is the creator, producer and host/moderator of 29 Game-Changers Radio series presented by SAP, bringing technology and business strategy thought leadership panel discussions to a global audience via the Business Channel on World Talk Radio. A broadcast journalist with nearly 20 years in media production and hosting, Bonnie has held marketing communications management roles in the business software, financial services, and real estate industries. She calls SAP Radio her "dream job". Listen to Coffee Break with Game-Changers.

Diving Deep Into Digital Experiences

Kai Goerlich

 

Google Cardboard VR goggles cost US$8
By 2019, immersive solutions
will be adopted in 20% of enterprise businesses
By 2025, the market for immersive hardware and software technology could be $182 billion
In 2017, Lowe’s launched
Holoroom How To VR DIY clinics

Link to Sources


From Dipping a Toe to Fully Immersed

The first wave of virtual reality (VR) and augmented reality (AR) is here,

using smartphones, glasses, and goggles to place us in the middle of 360-degree digital environments or overlay digital artifacts on the physical world. Prototypes, pilot projects, and first movers have already emerged:

  • Guiding warehouse pickers, cargo loaders, and truck drivers with AR
  • Overlaying constantly updated blueprints, measurements, and other construction data on building sites in real time with AR
  • Building 3D machine prototypes in VR for virtual testing and maintenance planning
  • Exhibiting new appliances and fixtures in a VR mockup of the customer’s home
  • Teaching medicine with AR tools that overlay diagnostics and instructions on patients’ bodies

A Vast Sea of Possibilities

Immersive technologies leapt forward in spring 2017 with the introduction of three new products:

  • Nvidia’s Project Holodeck, which generates shared photorealistic VR environments
  • A cloud-based platform for industrial AR from Lenovo New Vision AR and Wikitude
  • A workspace and headset from Meta that lets users use their hands to interact with AR artifacts

The Truly Digital Workplace

New immersive experiences won’t simply be new tools for existing tasks. They promise to create entirely new ways of working.

VR avatars that look and sound like their owners will soon be able to meet in realistic virtual meeting spaces without requiring users to leave their desks or even their homes. With enough computing power and a smart-enough AI, we could soon let VR avatars act as our proxies while we’re doing other things—and (theoretically) do it well enough that no one can tell the difference.

We’ll need a way to signal when an avatar is being human driven in real time, when it’s on autopilot, and when it’s owned by a bot.


What Is Immersion?

A completely immersive experience that’s indistinguishable from real life is impossible given the current constraints on power, throughput, and battery life.

To make current digital experiences more convincing, we’ll need interactive sensors in objects and materials, more powerful infrastructure to create realistic images, and smarter interfaces to interpret and interact with data.

When everything around us is intelligent and interactive, every environment could have an AR overlay or VR presence, with use cases ranging from gaming to firefighting.

We could see a backlash touting the superiority of the unmediated physical world—but multisensory immersive experiences that we can navigate in 360-degree space will change what we consider “real.”


Download the executive brief Diving Deep Into Digital Experiences.


Read the full article Swimming in the Immersive Digital Experience.

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Kai Goerlich

About Kai Goerlich

Kai Goerlich is the Chief Futurist at SAP Innovation Center network His specialties include Competitive Intelligence, Market Intelligence, Corporate Foresight, Trends, Futuring and ideation. Share your thoughts with Kai on Twitter @KaiGoe.heif Futu

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Blockchain: Thoughts On The "Next Big Thing"

Ross Doherty

Many people associate blockchain with bitcoin—which is, at least for today, the most common application to leverage blockchain. However, when you dig a little deeper and consider the core concepts of blockchain—distribution, consensus achieved by algorithm rather than opinion, cryptographically secure, private—you start to think about how these aspects can be applied, both technically and strategically, to solve problems simple and  complex. Blockchain is neither a product nor a system – instead, it is a concept.

Blockchain applications disrupt conventional thinking and conventional approaches regarding data processing, handling, and storage. First we had the “move to the cloud,” and many were cautious and even frightened of what it meant to move their systems, infrastructure, and data to a platform outside their organization’s four walls. Compound this with blockchain in its purest form—a distributed and possibly shared resource—and you can see why many may be reluctant.

My sentiment, however, is a little different. Creating a solid basis that harnesses the concepts of blockchain with sufficient thought leadership and knowledge-sharing, along with a pragmatic and open-minded approach to problem-solving, can lead to innovative and disruptive outcomes and solid solutions for customers. Blockchain should not be feared, but rather rationalized and demystified, with the goal of making it someday as ubiquitous as the cloud. Blockchain should not be pigeonholed into a specific industry or use case—it is much more that, and it should be much more than that.

Grounding ourselves momentarily, allow me to relay some ideas from both within the enterprise and customers regarding possible use cases for blockchain technology: From placing blockchain at the core of business networks for traceability and auditability, to a way for ordinary people to easily and cheaply post a document as part of a patent process; a way to counteract bootlegging and counterfeiting in commodity supply chain, a way to add an additional layer of security to simple email exchange; from electronic voting systems through to medial record storage. The beauty of blockchain is that its application can scale as big as your imagination allows.

Blockchain is not the staple of the corporate, nor is it limited to grand and expansive development teams—most of the technology is open source, public, and tangible to everyone. It is not an exclusive or expert concept, prohibitive in terms of cost or resource. Blockchain is a new frontier, largely unmined and full of opportunity.

In closing, I invite you to invest some time to do what I did when I first encountered the concept and needed to better understand it. Plug “Blockchain explained simply” (or words to that effect) into your preferred search engine. Find the article that best speaks to you—there are plenty online. Once you get it (and I promise you will) and experience your “eureka!” moment, start to think how blockchain and its concepts might help you solve a business or technical problem.

For more insight on blockchain, see Blockchain’s Value Underestimated, Despite The Hype.

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Ross Doherty

About Ross Doherty

Ross Doherty is a manager in the SAP Innovative Business Solutions team, based in Galway, Ireland. Ross’s team’s focus is in the domain of Business Networks and Innovation. Ross is proud to lead a talented and diverse team of pre-sales, integration, quality management, user assistance and solution architects, and to be serving SAP for almost 4 years.