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.

Next-Gen Environmental Consulting: The Tectonic Shift In Pollution Management

Brian Kahl

A consultant is commuting to her office in a driverless car when her cell phone buzzes with an alert. The text message indicates that indoor TCE concentrations at her client’s aerospace facility have just exceeded established threshold levels from two vapor intrusion (VI) monitoring stations.

She opens her laptop to access her secure web data portal, where she can view a live feed of a dozen monitoring stations. After reviewing time-series plots of recent VOC data, the consultant then views a playback loop of plume visualizations to evaluate trends and possible causality. With a click of the mouse, she checks the status of mitigation blowers and notices that high TCE levels indeed triggered the blower actuators; however, the system appeared to have little effect on subsequent indoor air readings.

The consultant immediately contacts her client and informs him that an exposure condition exists in Office #4; however, the VOC source does not appear to be from the subsurface. After a discussion of potential causes, a professional field technician is dispatched to the site for diagnostic evaluation of the event. The technician finds that the VI mitigation system is operating perfectly and begins an audit of the affected office, including an interview of relevant site workers.

His audit discovers that an equipment repair service was utilizing a degreasing product that included TCE. After removing the offending source and turning on the HVAC, both the technician and the offsite consultant watch as the TCE levels diminish to below actionable levels. The technician files his notes on the web data portal and the consultant generates a brief event report that is automatically disseminated to the client and company counsel. After reviewing the report, the client forwards the report to the company’s insurance agent and regulatory case worker for compliance documentation.

While most of us are not yet riding in driverless cars, the convergence of emerging technologies has already demonstrated the capabilities described above. With the widespread availability of inexpensive broadband, ubiquitous wireless communication, embedded systems, sensor technology, and real-time analytics, the environmental industry is poised for major disruption to its legacy business model. Regardless of what we label the evolving interconnectivity of smart devices—Internet of Things (IoT), wireless sensor networks, artificial intelligence, etc.), we are already seeing major disruptions to industries, and especially service provider markets (taxis vs. Uber, cashiers vs. self-check kiosks, toll booths vs EZPass, etc.).

IoT and automated, unattended, real-time sensor networks are already seeing success in industrial automation, process control, energy monitoring, homeland security, leak detection, and even weather tracking. We now have earthquake and tsunami early-warning systems that offer real-time lifesaving advantages, yet the average consulting firm continues to deploy manual labor for collecting and reporting information from the environment.

Some would argue that the pervasive billable-hours business model, combined with a tiered compliance process, is to blame for industry’s slow adoption of automation technology. Resistance to investing in change may be further complicated by a growing skills gap that is often outpaced by the rate of emerging technologies.

It seems clear that innovative firms that decide to adopt tools that automate much of their field service and reporting roles will require alternative revenue sources to replace the lost hourly labor billings. Consulting managers and principals will need to look at their revenue models with entirely new lenses and begin to offer alternative packaged solutions in addition to traditional professional consulting services.

Perhaps market forces will necessitate these changes. When internet commerce rolled across the business map like a well-armed tactical army, we saw what happened to the industries that resisted the urge to change their operating model. The emergence of the mobile connected economy not only disrupted the service industries, its infectious influence on consumer expectations was left intact. The condition of high-paced expectations will begin to permeate corporate boardrooms, and responsible parties will begin to demand faster answers (and remedies) from professionals. Given the rapid pace of innovation driven by a convergence of reliable technology, it seems like a compelling time for this change to occur.

Consultants will need to make the shift to the new faster-paced approach to managing, interpreting, and advising—perhaps a work environment where less time is spent writing and more time is spent reviewing and advising based on electronic data and graphics. As responsible parties and regulatory decision makers learn about cost-competitive and quicker alternative solutions to environmental problems, their expectations will drive market adoption.

Similarly, as earth scientists start to recognize the efficiencies and intellectual insights offered by temporally relevant spatial data, their business models will necessarily adapt. Perhaps we will start to see outcome-based service models develop where flat fees are charged for a desired outcome in services like compliance monitoring. As innovative agile players enter the market, legacy firms will need to re-examine their business models and either adapt or partner in this coming tectonic shift to next-gen environmental consulting.

For more insight on developing an effective digital transformation plan, see 4 Strategic Differentiators To Look For In Your Digital Partner.

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About Brian Kahl

Brian Kahl is a Professional Geologist with over 30 years of experience managing environmental pollution issues. Mr. Kahl works with technology partners to implement real-time automated environmental monitoring solutions using sensor-based remote data acquisition and processing. As a contributing writer, Mr. Kahl shares insights about emerging digital automation technologies that are transforming the professional environmental management industry.

Swiss Coalition Plans Green, IoT-Powered Cargo System

Robin Meyerhoff

“Switzerland is not famous for its big cities,” said Daniel Wiener, a board member of Cargo Sous Terrain, an organization that is developing an underground transportation and logistics system for Switzerland, “but if you look at the northern part, it’s estimated that there will be 10 million inhabitants in the next 15 years—a similar population to Los Angeles.”

He continues, “We have traffic and logistics problems similar to big cities. And while Switzerland has great infrastructure, the quality of logistics is not at the same level.”

Cargo Sous Terrain aims to change that and create a “world-class infrastructure for logistics” by 2040. Cargo Sous Terrain is a coalition of private companies that plans to create a network of underground tunnels that will connect major cities throughout Northern Switzerland. The goal is to build central logistics hubs in cities for goods that will allow companies to easily deliver them across the country.

Speaking at SAP Leonardo Live in Frankfurt earlier this month, Daniel explained that besides the increasing population, Switzerland expects a 37 percent increase in freight transport over the next 20 years. Cargo Sous Terrain believes that its 24×7 delivery system will reduce road congestion by as much as 40 percent.

Cargo Sous Terrain’s plan for the tunnels reads like something out of a science fiction novel: Driverless wagons will move goods from one urban hub to another. Then the items will be loaded onto vehicles powered by electricity, to reduce the carbon footprint, and bring them directly to people’s houses. Eventually, Cargo Sous Terrain hopes that driverless cars will take over this last stage of package delivery. Even better, the entire operation will be powered by renewable energy and hopes to reduce carbon emissions by 80 percent.

To manage this vast transportation network servicing millions of citizens, Cargo Sous Terrain digitized its operations. Because the wagons—and much of the underground system—will be unmanned, it’s critical to have a technology solution in place that can monitor for any technical or scheduling issues. With the technology, Cargo Sous Terrain is building a solution that harnesses Internet of Things and machine-learning technologies to help ensure operations run smoothly and deliveries arrive on time.

Daniel, who also heads up the organization’s communications, investor relations, and corporate social responsibility, said “People now expect to get things on demand. We need to guarantee an exact arrival time. For example, if they order tennis shoes to be delivered by 3 pm tomorrow, we can only guarantee that if we have automated processes from end to end.”

The automated system will integrate sensor data from pallets and wagons into the overall logistics and delivery mechanisms Cargo Sous Terrain is building. A digital innovation system will help operations managers do intelligent, real-time route planning and predictive maintenance to make sure packages arrive on time.

As the project matures, Daniel expects that machine learning will help logistics managers better anticipate how factors like weather or item weight will impact delivery and autocorrect issues before there is a problem.

Dr. Uwe Kubach, chief evangelist of IoT at SAP, has been working closely with Cargo Sous Terrain. He explained, “In urban IT projects we often see IoT information in siloed applications. For example, information from street light sensors is only in street light management applications. The same is true with traffic information. It makes it difficult to bring it together with data from other sources and then apply machine-learning algorithms against them.”

He explains, “Cloud computing can connect all these sources so you can use analytics to find patterns, and machine learning to take corrective action.” Cargo Sous Terrain aims to create an IT foundation and the applications required for integrated city logistics that will address the challenges of urbanization and congestion in Northern Switzerland. For example, cities like Beijing and Buenos Aires are using IoT solutions and a cloud platform to address problems like traffic management and flooding.

Currently, the Cargo Sous Terrain project is in the planning and “get shovel-ready” stage. Construction is expected to start in 2024 through 2030; and the network is expected to expand across Switzerland.

For more on how IoT could drive future innovation, see How Thought Leaders Envision The Future Of IoT.

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Robin Meyerhoff

About Robin Meyerhoff

Robin Meyerhoff is the Senior Director, Content Team, Global Corporate Affairs, at SAP, responsible for telling key corporate stories via multiple formats: cartoons, video, infographics, opinion pieces. Lead integrated internal-external approach to rolling out content, including comprehensive editorial calendar, regional coordination and alignment with key business objective.

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

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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Jenny Dearborn: Soft Skills Will Be Essential for Future Careers

Jenny Dearborn

The Japanese culture has always shown a special reverence for its elderly. That’s why, in 1963, the government began a tradition of giving a silver dish, called a sakazuki, to each citizen who reached the age of 100 by Keiro no Hi (Respect for the Elders Day), which is celebrated on the third Monday of each September.

That first year, there were 153 recipients, according to The Japan Times. By 2016, the number had swelled to more than 65,000, and the dishes cost the already cash-strapped government more than US$2 million, Business Insider reports. Despite the country’s continued devotion to its seniors, the article continues, the government felt obliged to downgrade the finish of the dishes to silver plating to save money.

What tends to get lost in discussions about automation taking over jobs and Millennials taking over the workplace is the impact of increased longevity. In the future, people will need to be in the workforce much longer than they are today. Half of the people born in Japan today, for example, are predicted to live to 107, making their ancestors seem fragile, according to Lynda Gratton and Andrew Scott, professors at the London Business School and authors of The 100-Year Life: Living and Working in an Age of Longevity.

The End of the Three-Stage Career

Assuming that advances in healthcare continue, future generations in wealthier societies could be looking at careers lasting 65 or more years, rather than at the roughly 40 years for today’s 70-year-olds, write Gratton and Scott. The three-stage model of employment that dominates the global economy today—education, work, and retirement—will be blown out of the water.

It will be replaced by a new model in which people continually learn new skills and shed old ones. Consider that today’s most in-demand occupations and specialties did not exist 10 years ago, according to The Future of Jobs, a report from the World Economic Forum.

And the pace of change is only going to accelerate. Sixty-five percent of children entering primary school today will ultimately end up working in jobs that don’t yet exist, the report notes.

Our current educational systems are not equipped to cope with this degree of change. For example, roughly half of the subject knowledge acquired during the first year of a four-year technical degree, such as computer science, is outdated by the time students graduate, the report continues.

Skills That Transcend the Job Market

Instead of treating post-secondary education as a jumping-off point for a specific career path, we may see a switch to a shorter school career that focuses more on skills that transcend a constantly shifting job market. Today, some of these skills, such as complex problem solving and critical thinking, are taught mostly in the context of broader disciplines, such as math or the humanities.

Other competencies that will become critically important in the future are currently treated as if they come naturally or over time with maturity or experience. We receive little, if any, formal training, for example, in creativity and innovation, empathy, emotional intelligence, cross-cultural awareness, persuasion, active listening, and acceptance of change. (No wonder the self-help marketplace continues to thrive!)

The three-stage model of employment that dominates the global economy today—education, work, and retirement—will be blown out of the water.

These skills, which today are heaped together under the dismissive “soft” rubric, are going to harden up to become indispensable. They will become more important, thanks to artificial intelligence and machine learning, which will usher in an era of infinite information, rendering the concept of an expert in most of today’s job disciplines a quaint relic. As our ability to know more than those around us decreases, our need to be able to collaborate well (with both humans and machines) will help define our success in the future.

Individuals and organizations alike will have to learn how to become more flexible and ready to give up set-in-stone ideas about how businesses and careers are supposed to operate. Given the rapid advances in knowledge and attendant skills that the future will bring, we must be willing to say, repeatedly, that whatever we’ve learned to that point doesn’t apply anymore.

Careers will become more like life itself: a series of unpredictable, fluid experiences rather than a tightly scripted narrative. We need to think about the way forward and be more willing to accept change at the individual and organizational levels.

Rethink Employee Training

One way that organizations can help employees manage this shift is by rethinking training. Today, overworked and overwhelmed employees devote just 1% of their workweek to learning, according to a study by consultancy Bersin by Deloitte. Meanwhile, top business leaders such as Bill Gates and Nike founder Phil Knight spend about five hours a week reading, thinking, and experimenting, according to an article in Inc. magazine.

If organizations are to avoid high turnover costs in a world where the need for new skills is shifting constantly, they must give employees more time for learning and make training courses more relevant to the future needs of organizations and individuals, not just to their current needs.

The amount of learning required will vary by role. That’s why at SAP we’re creating learning personas for specific roles in the company and determining how many hours will be required for each. We’re also dividing up training hours into distinct topics:

  • Law: 10%. This is training required by law, such as training to prevent sexual harassment in the workplace.

  • Company: 20%. Company training includes internal policies and systems.

  • Business: 30%. Employees learn skills required for their current roles in their business units.

  • Future: 40%. This is internal, external, and employee-driven training to close critical skill gaps for jobs of the future.

In the future, we will always need to learn, grow, read, seek out knowledge and truth, and better ourselves with new skills. With the support of employers and educators, we will transform our hardwired fear of change into excitement for change.

We must be able to say to ourselves, “I’m excited to learn something new that I never thought I could do or that never seemed possible before.” D!

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