Roadmap for Innovation & Digital Tech Transformation in the Construction Sector
In recent times, companies, including construction firms, have become more enthusiastic about adopting disruptive new tech tools and embracing digital transformation. Despite various challenges, the accelerated digital evolution aided by investments in technology and innovation has provided new confidence to construction companies to leverage the potential of digital technology and innovation for sustainable growth.
Vinod Behl
Digital transformation offers numerous advantages such as productivity gains of 14-15% and cost reductions of 4-6%. While many companies are on their way to embracing digitization, only a few have fully digitized, and this is particularly true for Engineering & Construction (E&C) companies, which rank among the least digitized businesses. These companies often find that digital transformation falls short of expectations in delivering sustainable performance improvements. To fully embrace digital technologies and realize their benefits, construction companies must overcome several challenges.
A McKinsey survey highlights common challenges, ranging from a lack of proper understanding of what digital transformation should accomplish to poor integration of digital tools with business processes. What makes digital transformation particularly challenging in the E&C industry is the fragmentation of construction projects, lack of project replication, transience at the company and project level, and decentralization.
Construction projects are typically fragmented along the value chain, involving multiple layers of contractors and subcontractors, making it hard to coordinate changes among organizations. Moreover, the short-term and adversarial nature of construction contracts adds to the difficulty of implementing digital transformation initiatives.
The challenge of replicating digital transformation is another obstacle, as it requires changes across various projects, which can be hard to introduce. Each construction project has its own unique requirements in terms of design and delivery approach, making it challenging to standardize processes across all projects, except for large multi-layer mega projects.
Transience is also an issue in construction projects, as they involve the constant involvement of new organizations and teams. The transient nature of the workforce further complicates matters and makes it difficult for E&C companies and their subcontractors to establish consistent ways of working and building capabilities from one project to another.
The McKinsey survey also lists the challenges related to decentralization. The business operations of large E&C companies are not centralized with standardized processes and different business units and divisions follow their own set of processes, making it challenging for the companies to develop digital solutions applicable for multiple projects.
A KPMG Tech Report from 2022 lists the lack of capable talent (data scientists, engineers, etc) and the high cost of talent and digital systems as major challenges before digital transformation. There is a shortage of a talented workforce with a combination of digital technology knowledge and business understanding. Embedding digital tools into almost all aspects of business operations exacerbates the problem. Moreover, inadequate funding for recruiting and training employees further complicates matters. As per the report 46% of the companies spend in single digit of their annual budgets on tech transformation. The report also lists other challenges, such as a lack of skill in leveraging data systems, sub-optimal data management, risk-averse corporate culture, lack of clear and transparent digital governance policies, and the problem of legacy technology.
Working in this challenging environment with all these odds raises a pertinent question: How can these challenges be overcome to achieve successful digital transformation? The McKinsey study suggests that the impulsive approach to deploying new tech systems and software without thoughtfully considering the willingness of the workforce to adopt these tools often does not yield positive results. The right approach is to first identify operational changes for improving performance and then define digital use cases that will bring about the desired operational changes. Process-centered use cases can serve as enablers in terms of data and technology tools, capabilities, changes in mandates and responsibilities, legal and contractual requirements as such use cases are easier to replicate across multiple projects and ensure operational efficiency.
Regarding solutions for successful digital transformation, the McKinsey study prescribes focusing on fixing pain points before rushing to deploy IT solutions. This involves reskilling and restructuring engineering teams, adjusting project baselines to capture value, and connecting projects to unlock impact across the enterprise. Creating central repositories for designs at the element, package, and project levels for future repurposing and consolidating cost and schedule data for multiple projects and business units to increase bid accuracy for future tenders and improve margins are also recommended measures.
Outlining a successful approach to drive digital transformation, a Boston Consulting Group (BCG) study calls for building and validating a business case, incubating it, and then commercializing it by achieving the scale of technology and business processes. Augmenting human capabilities by managing talent and building digital skills, fostering faster cross-functional collaboration, aligning governance, processes, and organizational structure with a platform-driven operating model, and creating Data & Digital Platforms (DDPs) for effective digital transformation are other suggested approaches. There is also an emphasis on developing synergy between business and digital technology by creating a robust digital value measurement system to achieve successful and faster leveraging from digital transformation.
In view of all these challenges and prospects, building new-age companies with sustainable growth will depend upon how successfully digital transformation is navigated and how effectively it is blended with augmented human capabilities to make business operations incremental, cost-effective, and sustainable.
Vinod Behl
Digital transformation offers numerous advantages such as productivity gains of 14-15% and cost reductions of 4-6%. While many companies are on their way to embracing digitization, only a few have fully digitized, and this is particularly true for Engineering & Construction (E&C) companies, which rank among the least digitized businesses. These companies often find that digital transformation falls short of expectations in delivering sustainable performance improvements. To fully embrace digital technologies and realize their benefits, construction companies must overcome several challenges.
A McKinsey survey highlights common challenges, ranging from a lack of proper understanding of what digital transformation should accomplish to poor integration of digital tools with business processes. What makes digital transformation particularly challenging in the E&C industry is the fragmentation of construction projects, lack of project replication, transience at the company and project level, and decentralization.
Construction projects are typically fragmented along the value chain, involving multiple layers of contractors and subcontractors, making it hard to coordinate changes among organizations. Moreover, the short-term and adversarial nature of construction contracts adds to the difficulty of implementing digital transformation initiatives.
The challenge of replicating digital transformation is another obstacle, as it requires changes across various projects, which can be hard to introduce. Each construction project has its own unique requirements in terms of design and delivery approach, making it challenging to standardize processes across all projects, except for large multi-layer mega projects.
Transience is also an issue in construction projects, as they involve the constant involvement of new organizations and teams. The transient nature of the workforce further complicates matters and makes it difficult for E&C companies and their subcontractors to establish consistent ways of working and building capabilities from one project to another.
The McKinsey survey also lists the challenges related to decentralization. The business operations of large E&C companies are not centralized with standardized processes and different business units and divisions follow their own set of processes, making it challenging for the companies to develop digital solutions applicable for multiple projects.
A KPMG Tech Report from 2022 lists the lack of capable talent (data scientists, engineers, etc) and the high cost of talent and digital systems as major challenges before digital transformation. There is a shortage of a talented workforce with a combination of digital technology knowledge and business understanding. Embedding digital tools into almost all aspects of business operations exacerbates the problem. Moreover, inadequate funding for recruiting and training employees further complicates matters. As per the report 46% of the companies spend in single digit of their annual budgets on tech transformation. The report also lists other challenges, such as a lack of skill in leveraging data systems, sub-optimal data management, risk-averse corporate culture, lack of clear and transparent digital governance policies, and the problem of legacy technology.
Working in this challenging environment with all these odds raises a pertinent question: How can these challenges be overcome to achieve successful digital transformation? The McKinsey study suggests that the impulsive approach to deploying new tech systems and software without thoughtfully considering the willingness of the workforce to adopt these tools often does not yield positive results. The right approach is to first identify operational changes for improving performance and then define digital use cases that will bring about the desired operational changes. Process-centered use cases can serve as enablers in terms of data and technology tools, capabilities, changes in mandates and responsibilities, legal and contractual requirements as such use cases are easier to replicate across multiple projects and ensure operational efficiency.
Regarding solutions for successful digital transformation, the McKinsey study prescribes focusing on fixing pain points before rushing to deploy IT solutions. This involves reskilling and restructuring engineering teams, adjusting project baselines to capture value, and connecting projects to unlock impact across the enterprise. Creating central repositories for designs at the element, package, and project levels for future repurposing and consolidating cost and schedule data for multiple projects and business units to increase bid accuracy for future tenders and improve margins are also recommended measures.
Outlining a successful approach to drive digital transformation, a Boston Consulting Group (BCG) study calls for building and validating a business case, incubating it, and then commercializing it by achieving the scale of technology and business processes. Augmenting human capabilities by managing talent and building digital skills, fostering faster cross-functional collaboration, aligning governance, processes, and organizational structure with a platform-driven operating model, and creating Data & Digital Platforms (DDPs) for effective digital transformation are other suggested approaches. There is also an emphasis on developing synergy between business and digital technology by creating a robust digital value measurement system to achieve successful and faster leveraging from digital transformation.
In view of all these challenges and prospects, building new-age companies with sustainable growth will depend upon how successfully digital transformation is navigated and how effectively it is blended with augmented human capabilities to make business operations incremental, cost-effective, and sustainable.
NBM&CW, August 2023
