How the construction industry is finally beginning to understand the value of time

Picture by A.Peterson

Lately it seems that every piece of news about construction innovation starts by highlighting the McKinsey reports on the construction labor productivity or the enormous opportunities that the industry is facing in the near future. Should be obvious that the paradigm has already shifted and the revolution is not just a quiet theoretical uprising of the few. Construction is a high turnover, low profitability industry with average operating profit at around 1,5–4%. Huge projects with budgets running into billions, each percentage point gained in productivity adds up to enormous amounts of money, so the potential gain in financial terms is almost ridiculous. But what is productivity, the “thing” construction is so much lacking off and what can the industry really do to make an impact in the foreseeable future?

A Hero Emerges, Finally!

A great example of the mindset shift is the recent 865 million dollar funding of Katerra, the hottest construction “start-up” at the moment. Whoever is interested in the story of Katerra, might want to listen to the recent ArchitectureTalk podcast. The interesting part about Katerra is that they are actually not doing anything revolutionary from the perspective of technology and manufacturing industry. It is disrupting simply because all the principles of supply chain management, ERP systems and leveraging technology, have never effectively been implemented on the whole value chain process of the building industry. Almost ironic that it often takes somebody from outside the industry to just start doing things differently because they simply are not aware of the hidden obstacles. In most cases, these obstacles are nothing more than comfort zones that established professionals are enjoying. So why is Katerra probably going to succeed — by combining vertical integration (complete control of the value adding processes from design to finish), offsite construction and digitalisation. Using information about the capabilities and limitations of transportation and offsite factories and putting this knowledge into practice already in the architectural design phase. By breaking down the made up barriers between fragments, forming long-term partnerships with suppliers, developing solutions with the DfMA mindset. In addition to everything else one of the most important impacts of Katerra is the “butterfly effect” it will have on the whole industry. Now construction finally has the Apple/Tesla example, the poster boy that everybody can (over)use as an example in presentations and finally turn into an innovation cliché. The European equivalent with a similar potential to disrupt could be CREE, so keep an eye out on their progress. The only thing these companies probably can not control are regulatory hindrances, municipal inefficiency and political incompetence but this will also change soon enough.

Productivity and time

So that this article would not be a complete rant about the failures of the construction industry let’s contemplate a simple question — what can Katerra or any other innovative companies in the sector actually drastically improve? It would be unfair to simply say that there has been no innovation at all in the industry. Construction has improved and developed in terms of more advanced materials, more efficient HVAC systems etc.

But the industry has neglected and taken for granted the simplest resource, which is TIME!

Why is time in this sense relevant? Because the construction industry has mostly been focusing on face value — choosing the cheapest sub-contractors and material unit values — instead of focusing on the fastest solutions and the best life cycle value propositions. It’s not that the industry doesn’t want to be faster and more productive. The problem is that it has been tackling the issue by doing the same jobs in the same sequence but faster. The end result is lower quality and unsatisfied participants. The cost reduction to meet the affordability aspect should come from process innovation, looking at the bigger picture instead of squeezing the sub-contractors.

By using offsite construction methods the industry can not just reduce time but also use it more efficiently — better delivery certainty, improved quality etc

A game changer in Europe will come in 2020 when all the new buildings must be Near Zero-Energy. This means that either buildings will rapidly become more expensive for the end client or some companies will finally start increasing productivity and build affordably to provide affordable housing. This is of course already happening, but mostly in countries where time costs a lot.

Time Value

Simple as it may seem but only now are we really seeing the implementation of Lean principles, supply chain management techniques etc. in construction. The industry is finally understanding that it does not have to be similar to manufacturing, it just has to start thinking differently and with an open mind incorporate all the applicable principles that have shifted entire industries. The core idea of Lean is to maximise value by minimising waste, to use available resources in the most efficient way as possible and to focus on eliminating every non-value adding activity. It is simply doing more with less time. In general economic theory the quantitative value of time is understood very pragmatically. In the financial sector, time is a key aspect of investing (it effects everything from risk analysis and is usually measured with interest etc.).

Unlike goods and services, we don’t own time and we can only affect how productive we are within a given period.

In the real economy — the shop floor businesses producing the goods and services that are linked with actual income for people etc — time is appreciated by businesses who collect data and constantly link time with the output. Since construction projects are usually long-term and the process fragmented and the cause-and-effect information is lost or neglected.

House printing — the future of construction?

For some reason, people have started playing around with the idea that maybe printing houses would be one solution to the productivity issue. This is just as reasonable and realistic as if in the future we would start printing cars or smartphones. Everybody can Google and look at the videos about the Chinese companies doing the “printing”, but before getting all excited I would recommend thinking about the actual processes it solves and the extra work it causes etc. More specifically when we talk about house printing we are actually talking about putting up concrete walls without formwork, and whoever has experience with the concrete formwork process (the effect of heat, cold, quality etc) understands that it is more complicated than just pushing a button. Especially in our climate — where we need to insulate, pressure test and thermoscan the final product. The point is not to bring the factory to the building site, but to divide the house into parts — whether there are volumetric units or panels or any type of modules — that can be manufactured with factory precision and assembled on site. So it is actually wrong to say that the use of automation and robotics has eluded the construction industry. On the contrary, we are just interpreting the use of “house printers” and robotics wrongly because we expect to see some cool Terminator type AI machines swinging around in the city landscape.

The use of robotics in construction is already happening, it is just not happening on the construction site. It is happening in controlled factory conditions instead of outside in the rain and cold. And it is happening with timber, not concrete.
Controlled factory conditions, together with streamlined design and precision technology increase productivity as well as quality.

Who will lead the charge

The question remains who will take the lead to drive the innovation when the process begins with design? The architects and structural design companies? Usually, the first one is and should be preoccupied with aesthetics and the second one is hoping for BIM to change the game. BIM is not a solution, but just a means, a very logical part of the overall construction digitalisation and software alignment process. BIM is something like the shift from typewriters to computers. It does not make content better per se, it just helps to streamline the whole process.

As Katerra shows in practice you need a more powerful protagonist with proper funding to take the initiative, to change the rules of the game and to communicate the constraints effectively to the other members in the value chain, to fix as many of the variables as possible and then start optimising the use of time.