The new age of engineering and construction technology

New technologies are changing the way that engineering and construction works. Companies need to be aware of these changes so that they can stay ahead of the competition.

The engineering and construction (E&C) industry is starting to use new technology from start-ups. This new technology is changing how companies design, plan, and execute projects. These start-ups are creating software, construction-focused hardware, and analytics that are making it easier to compile and share project information. This is important because construction projects are becoming more complex and expensive. This puts pressure on managers to improve costs, timelines, and efficiency.

Many E&C companies have started using new construction technologies in their work. However, most of these companies only use software tools that help them with digital collaboration. There are many reasons for this, but one reason is that these companies have had trouble introducing new tools to their employees on a large scale in the past. This has limited the impact these tools have had. Another reason is that some companies are not familiar with other types of technologies that could help improve productivity.

We analyzed 1,000 construction-software start-ups to help E&C companies better understand the landscape and develop more effective deployment strategies. We identified common use cases for which software tools are being developed across all project phases (design, preconstruction, construction, and operations and management). These include activities such as managing performance or monitoring safety. We then examined investment patterns to determine if solution providers are shifting their resources to different applications, since this could provide hints about tools that may soon be released to the market.

This article discusses the current and future uses of technology in the construction phase of projects. This is the most complex and time-consuming phase of the project, so it is important to use technology wisely. The data from McKinsey Global Institute's Construction Productivity Survey was used to understand the common challenges that arise when companies try to scale up their use of digital solutions.

Many engineering and construction firms are making the switch to new technology

Construction technology firms have raised $10 billion in investment funding from 2011 to early 2017. In order to understand this strong market and how it has changed, we first looked at all the tools and solutions that construction technology start-ups have developed. We then determined how each tool addressed or eliminated problems throughout the course of E&C projects—looking at both the phase in which they are used and the particular problem they solve.

Many start-ups create tools and solutions for the construction phase. This is because it is a very important time in the development of a product or service. There are eleven major use cases for this phase, including those related to enterprise-resource-planning systems. This type of system is used throughout construction. In contrast, fewer than 200 companies created products for the design, preconstruction, or operations and management phases.

After looking more closely at the use cases for the construction phase, we found that they fell into three categories: on-site execution, digital collaboration, and back-office integration (Exhibit 2). We also found that many start-ups are developing tools for multiple construction use cases within the same category. Only 13 percent are developing tools and solutions that cross between categories.

Carrying out an action or task on the spot

The first cluster contains use cases that relate to one of the most important aspects of construction: on-site execution. In this area, E&C companies typically encounter many difficulties, ranging from low productivity to delays in material shipments. Construction-technology start-ups have tried to mitigate some of the most pressing problems by developing tools and solutions that help with the following activities:

• There are tools that help track how productive people are in the field. The tool can tell how long someone worked and what they did. Some tools use data from GPS devices that people wear, while others have people enter data about their work into a mobile device. There are many field-productivity applications that help companies manage their project staffing and worker productivity. For example, with one tool, foremen can quickly see how many hours have been worked on the project, how many hours have been budgeted for, and how many hours remain.
• There are a lot of tools that companies use to keep their employees safe. These tools help with tracking and reporting any safety incidents across the job site. Managers can also use these tools to distribute safety alerts and tips to employees.
• There are new applications that can help managers inspect remote sites. These applications provide pictures and image tags. Managers can also update and track their punch lists in real time using these applications. The use of GPS during projects, particularly those related to transportation, has already increased the accuracy of project specifications. This increases the efficiency and accuracy of work done on-site. In the future, leading E&C companies hope to create autonomous quality-control systems by combining new technologies and artificial intelligence with other tools, including GPS and building-information modeling (BIM). While most tools in the on-site execution cluster fall into these areas, construction start-ups have also developed products to assist with many other on-site activities, including supply-chain logistics.

Digital collaboration

People who work on construction projects, like architects, engineers, and foremen need to communicate with each other often. This is because small changes can have a big impact on how long a project takes or how much it costs. That's why many construction-technology start-ups have focused on tools that promote digital collaboration—the online exchange of information—throughout all E&C project phases. Some of the most compelling tools relate to the following use cases:

• Design management. E&C staff often need to update blueprints and other project documents while on site. Rather than returning to the office to complete such tasks, as these workers would have done previously, they can now make changes in the field using mobile platforms. For instance, one mobile platform lets staff add markups, annotations, and hyperlinks to blueprints.
• Contract management. Contract management tools help staff complete many important tasks. They can use them to update checklists of what is required by the contract, or to collect information about communications between clients and contractors during renegotiations of contract terms.
• Performance management. Performance management tools help managers keep track of what is happening with the workforce. They can use this information to update people and share data quickly, especially during the preconstruction and construction phases. Some performance dashboards can automatically import data from the field, making it easier to collect information.
• Document management. There are many start-ups who have created tools to help companies upload and keep track of documents. This is helpful because companies can keep track of changes to the documents and all decisions that have been made about them. In some cases, these tools can also act as a permanent storage system for past records, making it easier for E&C firms to access them.

Integration of back-office operations

Integrating different back-office functions, such as accounting, finance, and human resources, can help companies access and use valuable data on projects. This data can include information on finances, costs, and schedules. However, often this valuable data is not easily accessible to analysts. Some companies have developed solutions to help foremen and other staff members have access to back-office data in real time. This can help general contractors see which change orders customers have approved, even if the customer has not paid yet. There are many back-office uses cases that focus on scheduling, managing equipment, and enterprise resource planning.

Construction technologies that are becoming more popular

Between 2011 and 2016, the greatest amount of investment for construction-technology players was for document-management use cases ($1.7 billion). This was followed by investment in equipment management ($1.4 billion) and enterprise-resource-planning systems (Exhibit 3). But when we restricted our analysis to new companies—those founded over the past five years—we discovered that the most popular use cases involved performance management and field productivity, with 29 percent of companies developing tools for one or both of these areas. Only 8 percent were developing document-management tools, and few focused solely on this area.

These trends show that venture capitalists and investors are interested in companies that focus on improving field productivity and site-performance management. These are the two areas that McKinsey identified as needing the most improvement in our report Reinventing construction through a productivity revolution. Tools that help with these tasks could make a big impact on a company's profits. For instance, in the construction industry, global labor-productivity growth has averaged about 1 percent annually over the past two decades. That is compared to 3 to 4 percent across other sectors. If E&C companies can close this gap—partly by using new tools and solutions—the industry’s output would increase by $1.6 trillion per year.

Our investigation also revealed that companies are using new hardware and software solutions to solve many different problems. Sometimes companies work together to do this. For example:

• Predictive analytics. Predictive analytics is the process of using data to make predictions about future events. Construction firms have a lot of data that startups are now using to create new applications. These applications use advanced analytics and machine learning to figure out what decisions need to be made in order to be more efficient. 
• Project monitoring enabled by drones and the IoT. Some start-ups are using technology to improve 5-D BIM. This is the process companies use to create digital representations of physical structures and then consider this information in combination with cost and scheduling data. Companies most frequently use drones to capture site images and aerial survey data, while the IoT primarily helps with monitoring equipment and preventive maintenance. Some companies have applied these technologies to new areas, however. For instance, Bechtel now uses drones for precision surveying, safety compliance, and other tasks.
• Safety monitoring enabled by wearables and virtual- or augmented-reality tools. Many companies are using new technology to increase safety. For example, Redpoint Positioning and Skanska use indoor GPS systems to mark hazard zones and activate safety warnings. In the future, we expect even more innovation. Virtual-reality safety walk-throughs, for example, may become the default solution for companies that want to assess potential hazards.

The journey to a next-generation operating model

Although many E&C firms have already started using construction-technology software, they do not get the full value from it. Even when a company successfully pilots a new tool, large-scale adoption may be difficult or quickly lose steam. In other cases, technology initiatives fail to produce noticeable improvements in key performance metrics. Our review of data from McKinsey Global Institute’s Construction Productivity Survey revealed that three factors might be responsible for these issues:

• Insufficient commitment. Many companies feel pressure to use digital solutions, especially if their competitors do. Leaders often struggle to keep their digital initiatives going after the excitement of the launch stage. This is because they have many different things that they need to pay attention to and not enough resources. This means that companies often see lower than expected returns from their digital investments and don't have a lot of incentive to keep funding them, especially if budget pressures increase.
• Difficulties with company-wide rollout. Most companies test new construction tools in pilots before investing in large-scale programs. Pilots usually go smoothly, but sometimes companies encounter problems during large-scale rollout because employees are not given enough information about why the new tools are being introduced or how they can help with their work. Tools that are controlled by headquarters can make it hard for on-site crews and foremen to do their jobs. This is because software programs that are supposed to help improve productivity have traditionally been focused on back-office work, not on what is happening on site. Sometimes companies have a hard time moving from the pilot phase to large-scale implementation because they do not invest in training field workers, especially general contractors and subcontractors.
• Lack of compatibility with legacy systems. When new technologies are used, they should integrate well with the old technologies that a company is already using. For example, if a company uses a field-data-collection application to collect data, it should be able to connect automatically to the company's cost system so that managers can see how productive employees are in real time and make changes as needed. However, most companies do not have complete solutions for integrating new technologies into legacy systems. This means that they must ask different providers to complete various parts of the integration process.

Some companies have already taken steps to address these challenges. For example, Bechtel set up a process for testing new technologies and then integrating them into work flows. Additionally, JCE invested in software and other tools that rely on the "Internet of Things." However, these companies are the exception, because many E&C players simply introduce new digital tools without educating workers about their benefits or altering organizational structures. This lack of support may explain why technology efforts often score early gains but quickly lose momentum.

To overcome these common challenges, companies should follow a next-generation operating model that incorporates the following elements:

• A focus on the client journey. Instead of creating digital solutions for specific parts of the company, companies should focus on creating digital solutions that improve the customer experience. They should also make sure their company is able to provide customer support in a way that meets customer needs. This might require changing or creating new roles in the company.
• A full suite of digital levers. If companies want to get the most value from their digital tools, they should also use robotics and advanced analytics. This will create a mix of digital levers that will provide the most value.
• A new management system. An embedded management system will make sure that the new operating model lasts. Incentives and digital-enabled transparency are important tools to help managers speed up the adoption of new technologies.
• A cultural transformation. Cultural transformation and capability-building programs help E&C companies become more agile and quickly adapt to changing client needs.

Building a next-generation operating model can seem difficult, especially for companies like E&C firms that have similar issues across different projects. Often, these businesses have established processes for dealing with common problems, which can make it difficult to adopt more innovative solutions. To overcome these difficulties and create a successful next-generation operating model that incorporates digital elements, we suggest taking the following tactical steps (Exhibit 4).

Having a plan for how you will use digital tools to reach your goals

Before using many different construction technology tools, companies should think about what they want to accomplish and how they can best do that. They should start by figuring out how they compare to other companies in terms of things like engineering work, construction productivity, or indirect costs.

After the benchmarking exercise, companies should identify ways to improve their business. This includes looking at some basic, but important issues that can have a big impact on the bottom line. They should also quantify how much money they can save or make from each improvement lever. Finally, they need to put all of this information together into an implementation plan with a timeline so they stay on track.

When a company deploys new solutions, all parts of the company need to be involved, from the people who talk to customers on the front line to top management. Leaders need to assess their companies realistically, figure out if they have the skills and capacity to use new tools, and then incorporate digital solutions into their regular work processes. Leaders must also look at their IT systems and see if the new tools can be integrated successfully. If not, they might need to make some changes before starting the new program.

To ensure successful implementation, top managers must demonstrate their support for new initiatives. CEOs, in particular, should make sure that specific teams and leaders are responsible for implementing the digital strategy, monitoring results, and ensuring that initiatives achieve scale and momentum.

Companies that are good at digital skills might have an advantage when they try to do a complex transformation of their whole company. Other companies might find this hard, so they should only do one change at a time.

Creating a test lab for your projects

The best E&C companies work with their clients and contractors to test and refine new digital solutions. If frontline workers identify a problem in the field, for example, they should discuss possible digital solutions with E&C leadership and then pilot them during the project. To monitor results, project teams must establish key performance indicators and share them periodically with the leaders who oversee digital programs. If a tool produces lackluster results or fails to hit the mark, leaders should work with the team involved to identify and resolve problems while the pilot is still under way.

Leaders should later publicize successful results from using the tools and encourage other teams to use them. This will help overcome communication gaps in the company and may generate enthusiasm among other staff. Some companies have appointed a chief innovation officer or digital officer to lead these large-scale programs. In some cases, this is a new role. For instance, Atkins recently appointed its first chief digital officer. This person will lead the development and integration of new and emerging technologies across the company. The appointment of chief innovation officers and chief digital officers should address one of the most important obstacles that executives noted in the McKinsey Construction Productivity Survey: a lack of internal processes to support innovation.

Using data to guide your decisions

Many of the best construction-technology tools use data from past and ongoing projects to help them make decisions. As these tools become more popular, construction and engineering firms are making sure that they use analytics in their work by collecting data sets that are relevant to them and investing in the skills needed to understand this data. Since analytics solutions also require specific skills, such as those related to data science, construction and engineering firms are expanding their recruitment base to attract employees with these skills, who are in short supply. Several major construction and engineering players have already begun hiring chief digital officers and additional data scientists.

Investing more in digital solutions

The construction technology is getting better quickly. This means the development schedule for new tools is shorter and they are more expensive. Unless engineering and construction firms invest a lot of money in this, they will not stay ahead of the curve. Every digital initiative has some financial risk, so engineering and construction companies should approach owners, developers, subcontractors, and technology providers to see if there are any partnerships or co-investment opportunities. For example, Bechtel recently partnered with the software company Rhumbix to improve its field-supervision platform for large construction projects.

To identify the best prospects, E&C companies should establish a network of experts who can advise them about the most promising solutions. Finally, companies should consider mergers and acquisitions with technology partners to bring digital skills in-house, since this will give them a role in driving innovation.

There are many construction technology start-ups that have developed tools for use in many parts of a construction project. These tools can be used for tasks like design management, safety monitoring, and field management. In the future, more tools will be developed to help with tasks like performance management. Companies in the construction industry that don't invest in the right tools will struggle to keep up with those who do.

The companies that invests more in technology now will be the industry leaders in the next ten to 15 years. They will be leaders if they have a commitment to change throughout the company. The company must change how it works and integrate new tools into their work. With this support, their new tools will give them an edge that no amount of human effort can replicate.

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