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The digital revolution of the past few decades is not only transforming how we work, but also changing business structures and the way we innovate. Companies that embrace digitalization perform better, are more agile and demonstrate higher labor productivity. They grow faster and are managed more efficiently. It is time for the construction industry, too, to take this step to avoid being left behind in an increasingly digital world.
Why? You can read about that in this blog!
Reason 1:
The digital construction gap with the United States
The US construction industry has been at the forefront of digital transformation since the beginning of time. Especially in pricing and procurement, the construction industry in the United States has been able to make great strides thanks to innovation. The chart below from the European Investment Bank clearly shows the difference between the two continents in the construction industry.
Source: European Investment Bank: Who is prepared for the new digital age?
American companies are leveraging advanced technologies to generate faster, more accurate quotations and to source the right suppliers. This results in greater efficiency and transparency. In doing so, the US is setting the pace for the rest of the world in construction digitalization. If we in Europe want to close the gap, we need to invest more consistently and strategically in digital solutions.
Reason 2:
Construction industry proves unproductive
Global research by McKinsey & Company shows that productivity in construction has grown at an average annual rate of only 1% over the past two decades. Just for comparison, productivity across the entire global economy in other sectors has grown nearly 3% during that time. That may seem like a small difference, but that's three times (!) as much.
Research by Eurostat and others shows that there is a considerable lag in labor productivity in the construction sector. Where an employee in industry has doubled his productivity over the past 25 years, productivity in construction remains stagnant. This difference is quite noticeable. Because of this growing efficiency, industry increases output per labor hour, often making products cheaper. This is true in electronics, for example, where prices actually fell.
Source: Eurostat en ING research: Lagging productivity in construction is driving up building costs
So one could well argue that the construction industry still has a lot of catching up to do in terms of labor productivity.
The cause of this lagging productivity is obvious. Again, the lack of digitalization is a major cause of the lagging growth. Even other traditional industries, such as government, mining and oil companies, all have greater productivity gains than construction.
Reason 3:
Digital transformation in construction is lagging
A major reason for low productivity is digitalization. Or rather, the lack thereof. In fact, developments in construction in terms of digitalization and the adoption of these innovations also lag significantly behind compared to other industries. The construction industry is among the oldest trades in the global economy, making it conservative and in the last place innovative.
A study by the RICS confirms this. Their 2023 Digitalization in construction report states that less than half of the construction industry sees digitalization opportunities as an improvement. In other words, adoption of this functionality and tools is very low in practice.
The cause of limited adoption of digitalization of construction processes and practices? The aforementioned study describes three:
- Fear of high cost, much effort and change;
- Lack of well-trained personnel;
- No clear demand from stakeholders within the organization.
And so the traditional nature of construction seems to be getting in the way of digitalization in the sector. But digitalization in construction is not a temporary trend, but a substantial change that is radically transforming the sector.
High potential of new technology in construction
Digitalization in construction involves implementing digital technologies to improve the planning, execution, management and maintenance of construction projects. This includes digital tools and SaaS solutions such as Building Information Modeling (BIM), augmented reality (AR), artificial intelligence (AI) and sourcing packages. These technologies increase efficiency and accuracy, resulting in:
- Site and office efficiency
Digitalization streamlines work and improves progress control. - Cost savings
SaaS solutions provide more accurate cost estimates - Better planning and visualization
Digital tools improve visualization and optimize the design and planning process. - Improved safety and quality
Digital tools improve safety protocols and ensure quality of completed pieces. - Sustainable construction
Digitalization promotes efficient use of materials and energy-efficient construction processes.
In short, significant savings in time and costs, as well as improved quality of construction projects.
For construction professionals who want to remain competitive, it is critical to explore and adopt digital technologies. By investing in digitalization, construction companies can not only improve their operational efficiency, but also operate more sustainably and cost-effectively, benefiting both their profits and environmental impact. You could even say that if you don't digitalize, you are neglecting the opportunity for increased competitiveness, better labor productivity and innovative capacity. Construction companies tend to miss opportunities and benefits that digital transformation brings.
How does a construction company make the move to digitalization?
The benefits are clear, but implementing digitalization in construction also brings challenges. Construction companies of all shapes and sizes can address these by:
- Investing in technology and training
Invest in the right technologies and train staff to reduce resistance. - Working with partners
Work with technology providers to integrate digital solutions faster. - Data-driven decision-making
Embrace a data-driven process to reap the full benefits of digitalization.
Sourcing platform as first step
And in practice? The workflow with all its processes and practices of a construction project can be digitalized step by step. First of all, look at the inefficient work in this process. This is often the procurement and calculation phase of a project. The above studies also show that this is the right move.
The 'Digitalization in construction report' names 'estimation' as one of the most potential branches within digitalization to help the construction industry move forward.
A sourcing platform can offer a solution here. A sourcing platform is a digital platform that helps companies find, select and manage suppliers and materials. It optimizes procurement processes by comparing suppliers, requesting quotes and analyzing costs. It also ensures more efficient collaboration with suppliers.
For estimating, a sourcing platform offers additional benefits. It enables more accurate cost estimates through direct access to current prices and quotations from multiple suppliers. This allows calculations to be performed faster and more accurately, reducing the risk of errors and budget overruns.
Want to read more about this topic? We wrote a complete whitepaper on the digitalization of the European construction industry.
