Analysis

Will 2020 will finally be the tipping point for digitisation?

29 October 2019 | By Sander van de Rijdt

Sander van de Rijdt, co-founder and managing director of PlanRadar, sees positive signs that construction is finally waking up to the productivity benefits available from digital strategies.

The construction industry contributes nearly £90bn to the national economy, accounting for 6.7% of the UK’s economy and it hires as many as 2.9 million workers in the UK, roughly 10% of its workforce.

Yet despite its clear importance to the UK, and indeed to the global economy where it contributes $8.5 trillion a year, the industry is still yet to undergo any significant digitisation. In fact, the recent digitisation index from McKinsey nearly ranked the industry as the least digitised industry of all, instead, it sits only above agriculture and hunting.  

The collapse of UK contractor Carillion in January 2018 brought many of the challenges facing the construction industry to the attention of the public. One of the most significant was the level of profits that companies have been operating with since the economic downturn. Research conducted by Construction News found that despite the top 10 contractors having a combined turnover of £32bn, their pre-tax losses actually totalled £52.9m, an average pre-tax profit margin of -0.5%, while separate research among the top 100 firms found average profit margins were just 1.5%.

81% of companies said they planned to enact or put in place an initiative to improve their businesses digitally in 2020. This would be transformative for the sector, as government data shows that even growing productivity by 0.25% a year for 10 years, would add £56bn to UK GDP.– Sander van de Rijdt, PlanRadar

These figures show the very real difficulty the industry has had in resolving the link between profits, investment and productivity in recent times. Lower profit margins have meant less money for investment in digital innovation, which in turn has harmed productivity. The UK government estimates that this productivity slump could be costing the industry as much as £15bn a year.

Thin margins have no doubt made investment in digital innovation difficult in recent years. In fact, from our experience at PlanRadar, we’ve found that at least 60-70% of construction companies are still not dealing with any digitalisation at all, and it’s been stopping them from succeeding in a competitive market.

We’re often asked about the timing of our entry into the UK market, having launched this year amid the Brexit uncertainty, but we believe we have arrived at a time when there are clear signs that the industry is stepping up its digital transformation. Many of these signs are highlighted in a new in-depth research led report by Causeway, a survey of 200 key decision makers in the UK building industry, that suggested 2020 could be a critical year for digital transformation in the construction sector.

The findings showed that a majority of businesses (54%) admit the industry as a whole has been slow to adopt new technologies, with 56% of those questioned saying they were restricted from investing in new technology due to low margins.

The good news, however, is that 81% of companies that responded said they planned to enact or put in place an initiative to improve their businesses digitally in 2020, with 88% saying it would increase employee productivity. This would be transformative for the sector, as government data shows that even growing productivity by 0.25% a year for 10 years, would add £56bn to UK GDP.

In many areas of the supply chain, though, investment in digital solutions is already beginning to have a positive impact in reducing friction between supply chains and improving productivity. Of those surveyed by Causeway, 54% of companies that have integrated digital practices reported an increase in workforce productivity, 43% said it had already increased their business win rates, and 56% said it had reduced their operating costs.

Improvements in one area can lead to investment in another. Difficulties with mobile teams can be harnessed with mobile devices, with the adoption of new management technologies reported to have increased productivity by 15%. Whereas the introduction of biometric technology has been found to lead to cost savings of up to 20%, with 77% of respondents saying it also improved health and safety and accident rates.

The problem of invoicing can also be managed significantly better with digital solutions. Six out of 10 respondents referred to this as one of their biggest challenges, but 44% of those who had invested in e-voicing said they had reduced their costs by up to 10-20%. We’ve found those that have implemented construction management software are already realising time savings of seven working hours per week on average.

Fundamentally, the industry feels like it could be on the cusp of reversing the negative trend of the last decade. As the chief executive of Causeway wrote, the failure to digitise can be “partly attributed to the fact the industry is stuck in a vicious circle of low productivity and low profitability.”

On average though, the firms that responded that had already implemented some digital reforms were recording savings as high as 20%. It’s encouraging that at boardroom level there is a real desire now to embrace technology and capture efficiency savings. For the first time in a long time, there is now a genuine concern about being technologically left behind in construction.